The Department of Energy (DOE) is requesting that Congress modify the Oil Deregulation Act to create a framework for the government to effectively intervene and respond to unexpected, long-term oil price increases.
The DOE also requested permission to compel the unbundling of cost of petroleum retail goods to establish their actual and passed-on prices in a letter to Sen. Sherwin T. Gatchalian and Rep. Juan Miguel M. Arroyo, Chairman of the Senate and House Committees on Energy, respectively.
The DOE said in a statement that it submitted the request to Congress because demand for oil continues to exceed supply on the global market, a scenario that is anticipated to last through the end of the year or possibly into the first quarter of 2022.
According to the DOE, the disparity between global demand estimated at 103.22 million barrels a day, and the current supply of 100.32 million barrels per day can be attributed to the following factors:
(1) the surge of economic activities due to the containment of COVID-19 as a result of measures adopted and implemented worldwide (i.e. mass vaccination, control of the Delta and other variants, Europe’s “no-lockdown” policy, and China’s economic boost). This led to a sudden demand in energy utilization, including the demand on oil products in the transportation sector like gasoline and diesel;
(2) the stocking of petroleum products’ inventories as winter approaches to cover demand from October this year to March of next year, with stocking expected until February 2021;
(3) slowed production due to the current global direction of sourcing energy from low-carbon emitting sources. This has limited the optimum level of production, causing the halt and event withdrawal of investments in the development and expansion of the fossil fuel industry;
(4) International sanctions to oil-producing countries like Iran and Venezuela that stopped the drilling of oil companies and the buying of oil products from these countries;
(5) Hurricane Ida a category 4 storm that hit the US Gulf coast on August 29 had caused an estimated loss of US crude oil production by as much as 30 million barrels.
The DOE noted that before the pandemic, the latest recorded total worldwide supply is, more or less, 104 barrels a day. To catch up with the demand, the Organization of Petroleum Exporting Countries (OPEC) committed to raising the production and supply of crude oil by 400,000 barrels/day.
With increasing pressure to ramp up production, OPEC is scheduled to meet on 4 November 2021 to discuss and reassess the situation.
The Philippine Situation
As far as the Philippines is concerned, the DOE said our country utilizes the equivalent of 425,000 barrels/day, which is around 0.4% of the world supply.
In its effort to mitigate the impact of the rising oil prices, the DOE has met with the oil industry stakeholders to ensure supply while the problem persists, and asked them if discounts could be extended to the public, especially to the public transport sector.
According to the DOE, supply was assured and some companies (e.g. Jetti, Seaoil, Shell, Phoenix, Unioil) agreed to extend discounts to the public transport industry on top of existing discounts like vaccination and loyalty incentives.
In addition to its immediate response to the continuing trend of oil price hikes, the DOE also took into consideration a whole-of-government approach and medium and long-term policy directions in requesting Congress for a review of the Oil Deregulation Law.
As far as its request for authority to require unbundling of the cost of retail products, DOE maintains it would result in greater market transparency by establishing the trends in the prices of oil and finished petroleum products.
It can be recalled that Energy Secretary Alfonso G. Cusi on May 2019 issued a department circular (DC2019-05-0008) requiring the unbundling of oil prices for its data gathering and policymaking function.
Upon the opposition of oil industry players, the circular has been subjected to an injunction by the RTC despite the DOE’s argument that the “unbundling policy” is not violative of the Oil Deregulation Law.
The DOE insisted that unbundling would help ensure a level playing field within the oil industry while upholding the best interests of consumers.