The global crude oil market is in turmoil, sending the price of “black gold” to its lowest in four years. What gives? Experts have cited the weak demand from industrialized economies and a supply glut aided by the additional production from the United States’ booming shale oil industry. A number of analysts have forwarded conspiracy theories, such as the plan to punish major oil producer Russia for its recent transgression into Ukraine and Iran for its secretive nuclear program.
The price of Dubai crude (the Philippine benchmark) fell last week to a low of $65 a barrel—a cumulative decline of about 40 percent since it started to fall in June. Prices were weighed down the most by the failure last November of the Organization of Petroleum Exporting Countries (Opec) to agree on a production cutback to curb global supply, slowing the manufacturing industry in Europe’s top three economies—Germany, France and Italy—as well as the decline in China’s November factory output (the first time in six months).
Locally, tumbling crude prices can only impact positively on the economy, particularly on consumers. Motorists can only smile at the falling cost of fuel. Pump prices of gasoline, diesel and LPG have all been declining for the past weeks, although the pace of downward adjustment could be bigger. Last Dec. 7, most of the oil companies implemented a big price rollback of P2.25 for diesel and P2.50 for gasoline. These brought the total year-to-date net decrease to P12.13 a liter for diesel and P10.74 a liter for gasoline. The average price of LPG has also been lowered by P28.52 a kilo, or P313.72 for an 11-kilo cylinder tank.
As of Dec. 11, pump prices of gasoline ranged from P40.60 to P49.25 a liter, down from P50-P56.35 at the start of the year. Diesel prices were P33 to P39.55 a liter, also down from P42.20-P46.45 in the first week of January. LPG prices ranged from P568 to P707 for an 11-kilogram tank, much lower than the P850-P967 range at the start of 2014.
Households are also seeing a decline in their electricity bills as power generators lower their price to distributors such as Manila Electric Co., which has been adjusting its monthly bills to its customers. Commuters also benefit from lower crude prices. Last Thursday, the Land Transportation Franchising and Regulatory Board approved a P1 reduction in public utility jeepney (PUJ) fares in Metro Manila effective yesterday (Friday). This means the minimum jeepney fare was reduced to P7.50 for the first four kilometers, with the rates for succeeding kilometers unchanged.
However, consumers have yet to see prices of essential goods reflecting the falling oil prices. Trade and Industry Secretary Gregory Domingo announced earlier that his agency had been directed to look into why prices of basic goods were not reflecting the steep drop in crude oil prices considering that fuel for factories accounted for a big chunk of production cost.
Domingo argued that at the very least, manufacturers should bring down prices by 3 percent to reflect the 40-percent fall in the price of crude oil. He said the price reduction in service-related industries like trucking, public utility vehicles, airlines and other transport-related businesses should also be higher, possibly even reaching as much as 10 percent since a big component of their business dealt with fuel. Citing data from the Department of Trade and Industry’s Consumer Protection and Advocacy Bureau, he said the price of a 155-gram can of sardines should go down by 22 centavos, a 370-milliliter can of evaporated milk by 95 centavos, a 50-gram coffee refill by 99 centavos, and a 25-kilogram sack of flour by P25.91.
The outlook for oil is grim for Opec, but good news for countries dependent on crude imports such as the Philippines. Global forecasts for oil prices show a continued decline through 2015 and even up to 2018. Many of these forecasts note that crude oil could fall to as low as $40 a barrel as early as next year.
With international experts predicting that the decline in oil prices will continue through 2015, the resulting lower prices of essentials such as LPG and electricity will truly be a great Christmas and New Year’s gift to consumers—something that will help offset their burdens, such as the horrendous traffic that seems to get worse by the day.
This Christmas and the coming year can be merrier if manufacturers heed the call for them to lower prices of basic goods to reflect the steep drop in oil prices.