Cartel: Existing in oil industry?

A few weeks ago, we saw and heard on TV the transport sector’s threat for a nationwide strike due to oil retail prices remaining high despite global prices downward trajectory. 

Truth to tell, this year’s oil (unleaded and premium gas) retail prices have started in the high P40s and low P50s for small and major players, respectively.  As the global prices increased by 5% towards the end of January, local retailers raised their prices by about the same rate, 5%, or to low P50s and to mid P50s per liter for small and major players, respectively.  Today, global prices have went down and even lower by 1% of the prices at the start of the year or about 6% from the prices towards the end of January.  Yet, disgustingly, both small and major players offered just token reductions (just a measly 3% from the end-of- January prices) of their retail prices.

Sheepishly, some ideologues and political grandstanders are taking advantage of these potential malpractices to gain media mileage.  In an era where deregulation encourages competition and have somehow brought fruition to consumers (such as, the airline industry), they are batting for government control over the oil industry.  They wanted more serious efforts from lawmakers in abolishing the Oil Deregulation Law, or, that we shall go back to the government-controlled era.  The main argument, oil companies have formed a cartel and are dictating the prices.  

While there is a big possibility that this proposal will gather steam and maybe popular in the end, its popularity may not be at all the solution we need.  It can be recalled that the Oil Price Stabilization Fund (OPSF) was set up in 1984.  Then, as part of the policy, the OPSF was supposed to help protect consumers from fluctuations in product prices while providing refiners with adequate margins.  In 1996, the OPSF was running a large deficit and was financed by taxpayers’ money to the tune of US$40 million a month.  Knowing fully well that crude oil is the Philippines’ largest single import (which accounts for 7 percent of the country’s total import bill) the amount involved was just too material.  Simply put, it was and shall be economically catastrophic.

Today, under the Deregulation Act, domestic fuel prices will be adjusted automatically based on MOPS (Mean of Platts Singapore) quoted prices.  Clearly, therefore, a base data is supposedly at hand for price determination purposes.  Palpably, it is purely mathematical and is therefore an exact science.  So that, arguments on prices are issues that are not suppose to surface.  Furthermore, while the general public accuses these oil companies of forming a cartel (it simply means an agreement among firms or companies for the primary purpose of controlling prices), the same act explicitly prohibits this practice.  .

Obviously, therefore, the law is broadly complete.  However, some unscrupulous businessmen are just toying with it and have unduly taken advantage of the general public’s helplessness.  Therefore, what is important now is for the Department of Energy to establish a “womb to tomb” formula that details conversions from the global prices to the oil company’s retail stations’ prices.  Hopefully too, the newly established Office for Competition under the Department of Justice can help consumers in making sure these measures are appropriately implemented.

However, still, even if we have to bring the law to perfection, there is no assurance that cartel may no longer exist.  Truth to tell, we are known all over the globe as friendly and hospitable.  Though such trait is admirable, its downside, however, is inexplicably outrageous.  Our yielding nature has been a thorn as we give in so easily even to the most unethical proposition.  Such submissive attitude is more often abused by people who are too selfish and too wanting to rule, dictate and dominate.  Sadly, these are characteristics that happen to be requisites for a cartel to exist.

For your comments and suggestions, please email to [email protected].