Philippines’ fuel shock exposes limits of deregulated oil market

The Philippines was hit by a sharp fuel-price shock on Tuesday, with pump costs surging after the escalating conflict involving Iran pushed global oil prices higher, in what could become one of the country’s steepest weekly increases in years. Consumer groups say the surge is exposing a deeper problem: a deregulated oil industry introduced in the late 1990s that allows companies to set pump prices in line with global markets, leaving the government with fewer tools to intervene than many of its regional peers. Critics say this has left households and commuters to shoulder the rising costs, even as officials promote conservation measures that advocacy groups describe as temporary fixes. Oil retailers on Tuesday began implementing price increases, which are expected to be rolled out in stages throughout the week. The Department of Energy (DOE) said the total increases could reach between 17 and 24 pesos (30 to 40 US cents) per litre, as it monitored gas stations nationwide following complaints of alleged hoarding and profiteering in the days before the scheduled adjustments. Officials had last week reminded retailers that price changes could only take effect on Tuesday. However, the DOE had limited authority to regulate premature price increases because of the country’s deregulated downstream oil industry, said Energy Secretary Sharon Garin. Officials said the agency could only issue show-cause orders and ask the public to report possible violations. Consumer advocates say those steps highlight the limits of the department’s authority under the country’s oil deregulation law. “That’s one of the questions we’ve raised with the Department of Energy,” said Nanoy Rafael, convenor of the community advocacy group PARA-Commuters Network. “It’s still unclear how much enforcement power they really have under the deregulation law.” Over the weekend, reports of long queues at petrol stations and fuel supplies being depleted circulated across the country as motorists rushed to fill up before the anticipated price hike. President Ferdinand Marcos Jnr also announced mitigation measures in anticipation of potential shortages and rising fuel costs, including the implementation of a four-day work week for government employees except those providing emergency and frontline services. A memorandum instructed government agencies to “strictly adopt energy conservation protocols”, including shifting to a compressed work week or designating a common day for work-from-home arrangements, which would remain in effect until lifted by the president. On Sunday, Marcos said he would request emergency powers from Congress so the government could reduce excise taxes on petroleum products in a bid to cushion the impact of rising fuel prices. Vulnerable to traders’ whims? Because the Philippines imports most of its fuel, the Southeast Asian country is particularly vulnerable to global oil price shocks when geopolitical tensions disrupt supply chains, analysts say. Those increases could quickly ripple through the wider economy, said Michael Ricafort, chief economist of the Rizal Commercial Banking Corporation. “Since the country imports most of its fuel requirements, the increase in global oil prices could translate into higher domestic pump prices, which may then feed into higher transport fares, wage pressures and increased costs for other goods and services through second-round inflation effects,” he said. Ricafort said these developments could weigh on economic growth as businesses and households braced themselves for higher costs. “Rising inflation erodes household purchasing power, reducing disposable income and consumption,” he said. “When oil prices increase globally, the Philippine economy feels it quickly through fuel, transport, electricity and eventually food prices,” said Ritchie Horario, convenor of the Alliance of Concerned Consumers of the Philippines. “When fuel prices increase, farm transport and even fertiliser costs hike, which then raises prices for basic commodities.” Rafael said the surge in domestic prices reflected “multiple layers”, including the speculative nature of global oil markets and the deregulated structure of the Philippines’ oil industry. “Because of that, countries like the Philippines become very vulnerable to the whims of traders who are mainly chasing profit,” he said. He noted that the Philippines experienced one of its biggest oil price shocks in 2022, during the Russia-Ukraine war, even though it did not source fuel directly from those countries. The Philippines is therefore particularly vulnerable to supply disruptions in the Middle East because of its links to global supply chains that source crude from countries such as Saudi Arabia and the United Arab Emirates. “When you combine speculative pricing, possible supply disruptions and deregulation, the impact becomes almost triple for us,” Rafael said. Band-Aid solution Consumer advocates also criticised the government’s four-day work week measure as offering only limited relief. “The government’s implementation of the four-day work week helps a little, but it will not meaningfully change national fuel demand … If an employee normally commutes five days a week, it could help reduce 20 per cent in commuting trips. But the real impact is smaller because some employees will still travel for errands on their day off,” Horario said. Rafael described the measure as a “Band-Aid solution” that benefits only some workers while shifting the burden of energy conservation onto the public. “It tries to control consumption, but the real problem is price. Oil prices are driven largely by speculation, not by actual demand. So reducing workdays won’t really address that,” he said. Discussions with government workers suggested that many were worried about longer working hours and late commutes under a compressed schedule, Rafael said. “Their concern is that longer workdays will mean getting home very late, especially for those who commute far. Then they still have to wake up early the next day. So again, the burden of ‘adjustment’ falls on ordinary workers,” he said. Workers would also face higher public transport fares alongside longer hours, he added. Rafael called on the Marcos administration to suspend fuel taxes through an executive order rather than requesting emergency powers from Congress. He also suggested short-term measures such as improving public transport systems, expanding service contracting programmes for buses, promoting mobility options including protected bike lanes, and extending train operating hours. “That would give workers – especially those in industries like call centres – cheaper commuting options,” he said. In the longer term, building resilience against oil shocks would require the Philippines to expand renewable energy sources and adopt electric and hybrid vehicles, Ricafort said. Rafael urged the country to strengthen regulation of oil companies and develop its own national energy industry. “As long as we depend heavily on imported fuel, we will always be vulnerable to geopolitical events.”

Philippines’ fuel shock exposes limits of deregulated oil market

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Consumer groups say households are left to absorb rising costs as the government rolls out conservation measures and considers fuel tax relief

Consumer groups say households are left to absorb rising costs as the government rolls out conservation measures and considers fuel tax relief