Philippines plans diesel stockpile amid Middle East war

The Philippine goverment plans to procure at least a million barrels of diesel to secure domestic fuel supply as tensions in the Middle East threaten global oil trade and China moves to curb refined fuel exports.

The Department of Energy (DoE) is studying a proposal to direct state-run Philippine National Oil Co. (PNOC) to buy the diesel for a strategic stockpile that could cover about five days of domestic consumption, Oil Industry Management Bureau Director Rino E. Abad told reporters on Thursday.

The planned purchase is equivalent to roughly 200,000 barrels a day, or about 33 million liters of diesel consumption daily in the Philippines.

Mr. Abad said the volume could be increased to as much as 3 million barrels, which would be enough to cover up to 15 days of supply, especially after reports that China is asking refiners to halt new export contracts for refined fuel.

“That’s a game changer,” he said, noting that about 30% of the Philippines’ diesel imports come from China. “Hopefully, South Korea will not follow because about 40% of our imports come from South Korea,” he added in mixed English and Filipino.

China has asked companies to stop signing new contracts to export refined fuel and attempt to cancel shipments already committed, according to a Reuters report, citing industry sources.

Mr. Abad said PNOC could buy diesel from nearby suppliers such as South Korea, Japan, Singapore, Malaysia and Indonesia if Chinese shipments are disrupted.

The fuel purchased by PNOC would still be sold to domestic oil companies to ensure continued supply in the local market, he said.

“At best, PNOC may sell the fuel at cost,” Mr. Abad said. “It will simply recover the procurement expenses and distribute the supply to domestic oil companies.”

Global oil supply chains have come under pressure after the closure of the Strait of Hormuz, a critical chokepoint through which roughly a fifth of the world’s oil and liquefied natural gas shipments pass.

The disruption stems from escalating hostilities involving Iran, the US and Israel.

As a net oil importer, the Philippines is particularly vulnerable to fluctuations in global oil supply and prices.

About 98% of the country’s crude oil imports come from the Middle East, according to DoE data, with the remainder obtained from nearby producers such as Brunei and Malaysia.

Fuel retailers have implemented several rounds of price increases this year as global oil prices climbed.

On Monday, oil companies raised gasoline prices by PHP 1.90 a liter, diesel by PHP 1.20 and kerosene by PHP 1.50.

The adjustments marked the 10^th consecutive weekly increase for diesel and kerosene prices and the eighth straight week for gasoline.

Since January, gasoline prices have increased by PHP 6.70 a liter, diesel by PHP 9.40 a liter and kerosene by PHP 7.70 a liter.

Staggered increasese

Energy Secretary Sharon S. Garin said some oil firms have agreed to implement potential increases in pump prices on a staggered basis next week to cushion the impact on consumers.

Oil companies assured the DoE during a meeting on Wednesday that existing fuel inventories remain adequate and that additional shipments previously ordered were on the way, Ms. Garin told DZMM radio.

“We also talked about staggering the increases and the discounts. They seem amenable,” she said.

Tanya Samillano, president of the Independent Philippine Petroleum Companies Association, said oil companies briefed the DoE on their plans for price adjustments and inventory levels.

“We discussed how we plan to implement our price adjustments this coming week and updated the department on our inventories,” she said in a Viber message.

Leo P. Bellas, president of Jetti Petroleum, Inc., said many independent fuel retailers had agreed to stagger price increases if global oil costs continue to climb.

“Almost all nonmajor players agreed to implement the potential increase on a staggered basis,” he told BusinessWorld.

Brigitte Carmel C. Lim, senior vice-president and chief operating officer of Cebu-based Top Line Business Development Corp., said the company supports the DoE’s call for measures that could soften the impact of rising oil prices.

“We will continue to monitor global price movements and regulatory advisories,” she said in a Viber message.

Ms. Garin said the government would determine the scale and timing of fuel price adjustments after assessing global market movements over a full five-day trading cycle.

“We will determine by the weekend because we need five days of simulation to estimate the increase,” she said.

Economists said even staggered fuel price increases could weigh on household spending.

Foundation for Economic Freedom President Calixto V. Chikiamco said spreading out price increases might reduce the shock to consumers but would still erode purchasing power.

“Staggering the increases is slightly better than a one-time price shock,” he said via Viber. “But the total increase is still large and will cut deeply into disposable income.”

IBON Foundation Executive Director Jose Enrique “Sonny” A. Africa said gradual adjustments might soften the immediate impact but would not reduce the overall burden on households.

“The increase is paced but households will still eventually pay the same higher prices,” he told BusinessWorld. — Sheldeen Joy Talavera, Reporter