DOE says P8 oil price hike unlikely

The projected P8 increase in oil by September is not likely to occur given the differences in the pricing of crude oil in the international market, an official of the Department of Energy (DOE) said yesterday.

According to DOE’s Oil Industry Management Bureau director Zenaida Monzada, the scenario of an P8 increase has no basis since the benchmark for crude prices in Asia is different compared to the US and Europe.

Monzada noted the reports of an oil increase scenario were attributed to only one industry player.

"The oil player did not say the P8 increase. Offhand I could say the figure is too much and unfounded. There is no basis. Let us not panic because we don’t see an P8 increase," Monzada stressed.

Monzada also noted the reports quoting a Western oil analyst in claiming the price of oil could reach $96 per barrel because of the ongoing crisis in the Middle East, which affects oil supply.

Monzada explained the oil analyst spoke of the prevailing market conditions in the US and Europe and that conditions in Asia are much different.

"Our pricing here in Asia, here in the Philippines, is different compared to the United States and Europe," she said.

Monzada pointed out the oil industry has benchmarks for crude prices.

For Asia, it is Dubai benchmark while in Europe, the Brent benchmark is being followed. For the US, the pricing standards are set by the West Texas Intermediate (WTI).

Monzada said the price difference is normally about $6 per barrel, which is lower in the Dubai benchmark used in the Philippines and other Asian countries.

"Our price here is lower by $6. Crude oil in Dubai is also heavier and sour (which is cheaper). We use more heavy crude because we use more diesel in the Philippines. Light crude is more on gasoline production, such as Europe and the US. Their sulfur level is also different. So the price of our crude oil is cheaper," she said.

Monzada though conceded external factors such as the Israel-Lebanon conflict and the North Korean missile test raised the prices of petroleum products.

When the price picked up, the benchmark price also shot to $69 per barrel in Dubai, she said.

"Then last Friday it went up to $70, then $71, and yesterday (Tuesday) $72 per barrel. But it went down again today (Wednesday). Every time there is (significant) news, every time there is news about war or conflict, the prices change. The news on the conflict between Israel and Lebanon also raised the prices of oil," Monzada said.

Monzada though assured the public that the crisis in the Middle East will not raise the prices of crude oil in the world market or in the Philippines since they are far from the major oil producers.

If the armed conflict between Israel and Lebanon will be contained, prices of oil will not go up so high as reported, she said.

On the other hand, the situation in Iraq has already been factored in the current prices. Prices of oil went up from $35 to $60 basically due to the conflict in Iraq, she said.

Monzada also told the weekly Ciudad Fernandina forum that the government is now mulling on stockpiling crude supplies, as done in other countries.

"For more than two years, the country has been studying how to stockpile crude oil. Developed countries already (began) stockpiling. Some of them even have a minimum stockpiling of 90 days. This means they have a stockpiling of crude oil for their country that would last for 90 days," Monzada said.

She said stockpiling is different from an operating inventory which is done only in oil refineries. The stockpile is used only for emergencies when the inventory is running low in the country.

She said some countries even have a 180-day buffer stockpile.