Oil: Excise tax & global prices not worrisome, retailers are

The TRAIN’s (Tax Reform for Acceleration and Inclusion) first installment is now one year old. While President Duterte believed then and still believes now that this tax reform package will surely help the country attain inclusive growth, some (then and now) have questioned and have still grumbled on its first installment. That it was and is inflationary. That the minimum wage earners and the unemployed were badly hit.

As the second installment on the excise tax for fuel is now in effect, the grumbling raised a decibel louder. This trepidation was aggravated by the fact that the country’s oil retailers raised prices right away at the start of the year. Well, just as the second installment took effect. So that, our countrymen are grumbling why, in heaven’s name, oil prices went up immediately when what they have in their tanks were all purchases in 2018. Thus, were not yet slapped with the second installment in excise taxes?

Why did it cause so much uproar? This is simply because basic need as it is, we are all affected by it.

Frankly, we can’t blame our countrymen. Historically, driven by greed, there were circumstances wherein certain sectors refused to be fair and cashed in or took advantage in all situations. These are the oil retailers. As we all know, every time global oil prices go up, automatically, oil retailers raise their prices not later than tomorrow. As if they just purchased their inventories today. Knowing fully well that our supplies are all imported, it shall take, at least, two weeks to arrive. Therefore, raising it right away has no basis at all. When prices go down, these same retailers do not reduce prices automatically. Well, logically, because what they have in their tanks were purchased when prices were still high. Simply put, they come straight when prices go down but are cheats when prices go up.

Now, let us put things in proper perspective. Is there really an increase in oil prices in the global market? Will the second installment of the excise tax really influence materially oil retail prices?

A deeper look on the current global oil price situation reveals these information. At the first trading day of the year 2018 (January 3, 2018), Brent crude was at US$67.85 per barrel. At the last trading day of the year 2018 (December 28, 2018), Brent crude was at US$50.57 per barrel. Simply put, oil global prices obviously went down considerably. Therefore, price-wise, there is absolutely nothing to worry. If there is something we have to be apprehensive about, it is the foreign exchange rate. To recall, on the first trading day of the year 2018 (January 3, 2018), a US$ was P49.9580. On the last trading day of the year (December 28, 2018), a US$ was P52.7240. Yet, if we convert global prices in pesos using the applicable US$-Peso exchange rates at the start and at the end of the year 2018, the prices per barrel shall be P3,389.65 and P2,666.25, respectively, or a decrease in global prices of P723.40 per barrel in a span of a year. Clearly, therefore, in totality, global oil prices aren’t worrisome at all.

Of course, one may say, OPEC and non-OPEC members might just agree, as usual, to production cuts to raise prices again. Well, they can always do that. The question is, have they been successful in doing it lately? Yes, but in a very short span. Historically, when the USA, the world’s largest consumer responds, prices stabilize or even go down. Why? This is because the USA produces oil as well. In fact, when threatened by the production cuts made by OPEC member countries and Russia in 2018, according to The Financial Times, “the US Energy Information Administration reported that the USA was already forecasting shale output to increase by 780,000 barrels per day in 2018, more than double the 380,000 barrels per day it expanded in 2017.” Brazil and Canada (another non-OPEC member countries) probably increased too.

Also, some members of the OPEC, like Iran and Venezuela cannot afford production cuts as their respective economies are so dependent on oil. Moreover, they hate to cut production because if they do, they won’t be able to serve their existing customers. Therefore, chances are, they will lose them to some non-OPEC member countries.

Indeed, what is really worrisome is not the global oil price increases because, definitely, there shall be no wild swings as some non-OPEC member countries will help stabilize prices. Not even the excise taxes because its effect is not that earthshaking. The attitudes of our retailers (a.k.a. opportunists) are.