The good news is that Petron and Shell slashed oil prices last November 30 by as much as 17 centavos due to decreased prices of crude oil in the world market and the strengthening of the peso. Even better news is that Caltex also rolled back prices by roughly the same amount last December 1, and that other "smaller" industry players are expected to follow suit.

Behind this seeming relief to consumers, however, is the fact that there could still be an additional rollback of as much as 64 centavos per liter.

In its recent media pronouncements, oil firms failed to mention two things: (1) that Dubai crude prices have substantially decreased by $2.07 per barrel from October to November 1998; and (2) that the peso has strengthened by P0.93 during the same period.

Aside from this, computations by IBON Foundation, an independent socioeconomic think-tank, show that petroleum products have been overpriced by as much as P0.04 per liter during the first 10 months of the year.

In releasing the new price build-up, it appears that the oil companies have also sugarcoated the data by making it appear that the recent rollback was substantial, since it has reportedly reached "as much as 17 centavos per liter."

In truth, however, the rollback is not even close to 10 centavos per liter.

Shell rolled back pump prices of premium and unleaded gasoline by 16 centavos per liter, while the price of diesel had a 17-centavo cut. Regular gasoline, on the other hand, was slashed by 13 centavos per liter.

Petron, for its part, cut the prices of gasoline and kerosene by 17 centavos per liter, while diesel and regular gasoline prices were rolled back by 15 centavos per liter.

Caltex reduced the price of premium (leaded and unleaded), kerosene and diesel. However, there were no price adjustments on regular gasoline.

Computing the weighted average based on consumption, IBON computations show that the rollback amounts to only P0.08 per liter.

Behind the Rollback...

While diesel accounts for 31% of total consumption, premium (leaded and unleaded) only comprise 12% of total consumption. Kerosene and regular gasoline, on the other hand, account for only 7 percent.

The price of fuel oil --- the most consumed petroleum product (34% of total) and is necessary for power production --- remains untouched by the oil firms.

This simply means that while jeepney drivers and operators may benefit from the recent rollback, consumers still have to contend with high power rates. It is also apparent that those who benefit from lower prices of premium (leaded or unleaded) are private motorists who come from the middle or upper social strata.

It must also be kept in mind that liquefied petroleum gas (LPG), which is consumed by households for cooking needs, was raised by as much as P15 for every 11-kg cylinder last November 13.

Given all these, it appears that the recent rollback is both misleading and minuscule.

Decreasing crude prices

It is also imperative to analyze the rollback last November 30 based on the trend in crude prices and fluctuation of the peso from January 1998 to the present.

According to a recent report by Reuters, world oil prices have crashed to new 12-year lows last November 25.

The Organization of Petroleum Exporting Countries (OPEC) has been unable to cut the extra oil from the market gluts.

Iraq remains political wildcard in the efforts of OPEC to cut world oil supply. It has continued oil sales without interruption, according to Reuters.

Even oil traders argued that any production cut will not do enough to rescue the oil market next year from burgeoning supply, brimming oil storage tanks and sluggish demand. This scenario implies further price reductions of world crude prices in the immediate future.

Indeed, Brent crude dipped to $10.90 per barrel towards the end of November 1998, "the lowest level for Brent crude since 1986."

Based on data from the Department of Energy (DOE), Brent crude has substantially decreased in January, February, March, June and October this year.

While there was an upward trend in April, May, July, August and September, the extent of price decrease is still greater the increase by $4.88 per barrel.

Foreign exchange fluctuations

From January to November 1998, the peso-dollar exchange rate had a roller coaster ride as it was devalued in January, April, June, July, August and September 1998 but nevertheless strengthened in February, March, May, October and November.

Nevertheless, the November 1998 end-of-period rate of P39.45 per one US dollar is the strongest position of the peso since May 1998.

(next: Recent Rollback Hides Overpricing of Oil Firms)