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INCLUDING the past weeks’ price cuts, oil firms have ticked off 17 oil price reductions and 14 hikes this year since January. But no matter, industry sources say, at least the price drops are no longer as drastic as they were in the second half of 2014.
The sixth straight weekly rollback in oil prices since July 28 trimmed the net increase in gasoline prices to P2.59 per liter for the year since January. Diesel has so far posted a net decrease of P1.49 per liter.
The oil price trend is such that if the decline continues, it would help government meet its inflation target of below two-percent for the year, some said.
Even so, with more stable price movements and the bigger consumption spurred by cheaper pump prices, some companies are actually feeling optimistic, or at least not as gloomy as they were around this time last year, sources said.
Over the last few months, oil prices have been moving at an average of plus-$5 or minus-$5 per barrel. This is much more stable than the price crash of late 2014, executives said.
Compare this to the last six months of 2014, when prices fell by more than 40 percent to over $60 per barrel from $110 a barrel. At some point last year, prices even reached $115 per barrel before the downward spiral that crushed oil firms’ margins.
This hit oil firms just as they built up stocks for the rainy months, which tend to fall in the second half of the year. This was to ensure deliveries to customers especially those in the island-provinces in the eventuality of disruptions caused by typhoons.
This year, Shell, a major fuel supplier in the Philippines, expects to recover in terms of income from refined oil products on “stable” prices, said its top official.
Asked of sales and income in the first half of 2015, Shell country chair Edgar O. Chua told reporters: “So far so good. Stable and reasonable prices are actually good.”
Work on an upgraded refinery and an import terminal in Cagayan de Oro will help Shell expand and improve efficiency enough to thrive in a tight oil market, Chua said.
Fernando Martinez, chair and CEO of minor oil player Eastern Petroleum, said that there may still be some upside in oil prices for the rest of the year.
“The pricing for diesel for the months of August and September appears to be on the upswing,” Martinez said.
But whatever that upside is may not be enough to arrest the overall downward trend in oil prices.
“Unless unusual events will reverse current trends, we see that crude prices will continue to go down,” said an executive, who asked not to be named for lack of authority to speak for the company on material information.
It is widely acknowledged that an overall weakness in demand, a continuing growth in supply (despite the fact that there is already a glut), and the anticipated revival of Iran’s crude exports amid its nuclear agreement with Western powers, would keep price spikes in check.
On the plus side, at least for oil firms, bearish traders did not get the sell-off they were expecting when Iran struck that nuclear deal, under which sanctions imposed by the United States, European Union and United Nations would be lifted in exchange for strict monitoring meant to curb Tehran’s nuclear development program.
On June 20, the UN Security Council approved a resolution that created the basis for international economic sanctions against Iran to be lifted. The resolution allowed all UN sanctions to be re-imposed if Iran violated the agreement in the next 10 years. But this does not bind the United States and the European Union, whose legislatures still need to approve the deal.
Then there is the matter of wooing back oil firms that had fled Iran when sanctions were declared in 2012.
Presently, the global petroleum market is oversupplied by about 2.5 million barrels per day, according the International Energy Agency.
The intergovernmental think tank monitors oil and gas data for industrialized nations. Experts said that depending on the timing of its resumption—most likely in the second half of 2016—Iranian oil shipments may not necessarily result in a further supply glut.
That is a bit of a breather for oil firms, to say the least. As one source said, from here on, oil firms have to “get creative” to adapt to a more competitive, more uncertain market.
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