Pricey petroleum burdens diesel-powered PH

(Second of a series)

As in previous weeks, Filipino motorists will experience another round of fuel price hikes today, Tuesday.

And just like before, diesel — the preferred fuel for the Philippine agriculture, manufacturing and transportation sectors, among others — will increase significantly more than other types of petroleum.

The prices hikes have behaved in such a way that the previously wide price difference between diesel and unleaded gas have al but disappeared, where once the former was, on average, cheaper by 10 percent than the latter at the gas pump.

This phenomenon, which is happening worldwide, is not lost on Ramon Ang, who heads Petron Corp., the country’s only remaining petroleum refiner and its largest fuel distributor.

“Demand for diesel is very high right now,” he said, explaining the phenomenon to the Inquirer.

Indeed, in the Philippines, and around the world, diesel is in much higher demand of late than other types of petroleum as various sectors of the economy reopen and rebound.

On Tuesday, oil companies implemented another big-time fuel price hike. The cost of diesel climbed by P4.30 per liter, and gasoline only by P2.15 per liter. Kerosene, used by many Filipino households for cooking and heating, rose by P4.85 per liter.

All told, the aggregate increase in local pump prices stood at P28.70 per liter for gasoline, P41.15 per liter for diesel and P37.95 per liter for kerosene, based on the Department of Energy’s (DOE) latest price monitoring.

That was significantly higher than the year-to-date adjustments of P17.65 per liter for gasoline, P14.30 per liter for diesel and P11.54 per liter for kerosene recorded in 2021.

Net oil importer

The same figures from the DOE showed diesel prices are catching up with gasoline prices.

Data from the agency showed the common price of gasoline in Metro Manila ranges from P79.80 to P91.65 per liter while diesel is priced at P83.95 to P92.35 per liter as of June 16.

Several items are taken into consideration in pricing fuel products including import costs—accounting for more than 50 percent of the pump price—as well as taxes and industry take.

The Philippines is a net oil importer so any development affecting the global oil market will have a substantial impact on domestic pump prices. Rodela Romero, assistant director of the DOE, cited various reasons that prompted a spike in fuel prices.

“All petroleum products, gasoline, diesel, kerosene, etc. are affected by the rising demand due to driving season and vacationing in the countries in the Northern Hemisphere like the United States and the ease of lockdowns in China,” he told the Inquirer.

Romero said there was a tightness of supply as most refineries were running close to capacity and the world’s spare oil capacity was extremely tight.

According to the DOE official, diesel has higher demand than other petroleum products in the country.

Because of its physical properties of being the ideal fuel for industrial machinery and heavy duty engines, diesel is the preferred fuel for running factory and agricultural equipment, trucks for logistics, and in the transportation sector, ships, buses and even jeepneys.

In other words, all critical engines of Philippine economic growth now cost much more to run.

Michael Ricafort, chief economist at the Rizal Commercial Banking Corp., noted not only diesel is easier and cheaper to refine (or the process of converting crude oil into useful products) but also diesel engines are more energy efficient and versatile in many parts of the globe.

In the Philippines, being a net oil importer, diesel has higher demand than other petroleum products. Total demand of petroleum products in 2021 totaled 24.6 billion liters, up by 8.7 percent from 22.6 billion liters in 2020.

“The transition to less stringent travel restrictions implemented nationwide during the latter part of 2021 has resulted [in the] increased economic activity, hence the growth in demand,” the DOE said in a report.

Rino Abad, director of the DOE’s Oil Industry Management Bureau, said there was a high possibility that local pump prices would decline if the demand would decrease as well.

Otherwise, for a diesel-dependent economy like the Philippines, the implications are significant, with Ricafort saying greater demand for diesel reflects the higher price increase compared to gasoline, which would translate to “higher transport costs, especially public transportation, and higher overall Inflation.”

“Only if global supply conditions start to normalize, especially if the Russia-Ukraine conflict is resolved [but still highly uncertain/speculative] would diesel prices normalize as well and reflect the cheaper production cost/selling price compared to gasoline, but offset by risk of continued higher demand for diesel in the world market for finished petroleum products as seen recently,” added Ricafort.

Several items are taken into consideration in pricing fuel products including import costs (landed cost)—accounting for more than 50 percent of the pump price—as well as taxes and industry take. INQ

(To be continued)