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GM

The oil industry is one the largest in the world which involves global processes and transactions, imports
and exports and such.

The industry may be divided into 3 sectors: the Upstream, Midstream and the Downstream.

The upstream sector involves exploration and production.

The midstream sector is the transportation and refining/processing

The downstream sector is the one closest to the consumers. Distribution and sale

This sector involves the actual processing, selling and distribution of the natural gas and oil based
products. This is the stage where petroleum crude oil is refined and the raw natural gas are processed
and purified.

Since the topic is very broad, I would not be discussing everything under the oil industry.

Prior 1998 , The ordinary Filipino driver recently faced a minor dilemma: Where to gas up? Before, there
were only three choices, namely, Petron, Shell and Caltex.

Now, new companies like Flying V and Seaoil surfaced in the gasoline arena, each providing attractive
incentives for motorists to patronize their products—cheaper petroleum prices, better services.

The entry of these companies can be credited to the deregulation of the oil industry.

Before

Prior to the deregulation of the oil industry, the Energy Regulatory Board fixed prices of petroleum
products and took into account the dollar cost of imported crude oil and the foreign exchange rate

The budgetary allocation maintained by the national government called the Oil Price Stabilization Fund
(OPSF) automatically absorbed any price change incurred by the oil companies in importing crude oil,
which is not reflected in the selling price

Consequently, the effects of a regulated oil industry were

- Changes in the world prices of oil and foreign exchange rate were not immediately reflected in the
domestic prices. Any large adjustment in oil prices made it difficult for businesses and consumers to
adjust quickly, thereby causing disruptions.

Domestic oil prices are increasing because world oil prices are increasing. demand (sales/exports) and the inventory of petroleum products are also being monitored to ensure that there is sufficient supply at all times. Hence. the country had already started feeling the effects of power supply deficiencies. . Domestic prices are generally based on international prices with Dubai as benchmark crude and the Mean of Platts Singapore (MOPS) as basis for finished products. . Deregulation was thus seen as the solution to the recurring deficit. the industry was eventually deregulated in 1996 with the enactment of RA 8180 (the Downstream Oil Industry Deregulation Act of 1996) in Congress.. The supply (importation/production). 1st ACT At the height of a strong lobbying effort for deregulation by oil companies and despite the loud opposition of militant groups. In response to a power supply crisis. as well. In the Oil Price Stabilization Fund (OPSF ) started to threaten the fiscal stability of the economy.Cross product subsidization created imbalances in the demand and supply of petroleum products. MAJOR REASONS When President Fidel Ramos started his administration in 1992. encouraging higher consumption and resulting in a shift in the use from gasoline to diesel. -Oil companies experienced delays in margin recoveries since any price adjustments would still require public hearings. adjustments in domestic oil prices are reflective of price movements in the international market and foreign exchange rates. Currently. MOPS is being used as the benchmark since it is not only the new players who import finished products but the refiners. with major areas already experiencing power interruptions. .Entry of new investors was discouraged. thereby minimizing competition. It must be emphasized that deregulation does not guarantee lower prices but fair prices. Diesel was priced significantly lower.

To encourage competition To encourage investments. In the full deregulation phase. In the partial deregulation phase. Pricing of petroleum products was based on the Automatic Pricing Mechanism (APM). the foreign exchange cover was removed. the percentage increase in domestic prices was less than what . and To remove cross product subsidies.Due to Republic Act 8479 entitled “Downstream Oil Industry Deregulation Act of 1998” approved on February 10. After The deregulation of the local oil industry was done in two phases: partial and full deregulation. a formula that automatically adjusts the price ceiling on local retail oil prices every month. There are four major reasons why the oil industry was deregulated: p To stabilize and provide reasonable prices. 1998 the Philippine government effectively reduced its control on oil-related pricing activity and trade restrictions. oil importation was liberalized and the automatic pricing mechanism was implemented. They also reflect market realities in Southeast Asia since Singapore is the hub of oil trading in the region. changes in the prices of local petroleum products are highly dependent on the SPP and movement of the exchange rate as suggested in the graph. controls on oil price setting were similarly lifted. and the OPSF was abolished. Thus. Singapore petroleum product prices are used as the basis for local pricing since they are widely published. based on the exchange rate and Singapore-posted prices (SPP). A notable observation is that in 1999.

Thus. therefore. What's the difference? After deregulation took effect.changes in the world price of crude oil and exchange rate depreciation warranted. prompting many consumers to complain and associate such increases with deregulation. . prices of petroleum products still continued to rise. the local oil industry has little choice but to adopt the rise in prices. it is of course very tempting for the oil companies to charge the consumers unreasonably high prices. the Department of Energy– Department of Justice Task Force was created. they have had favorable responses where the number of players increased and the price of petroleum products became more competitive. In the absence of pricing regulations. The reason: we are a net importer of petroleum. New Zealand and Japan have also recently deregulated their respective oil industries. This body evaluates the merits of any report of unreasonable petroleum product price increases.000 to P1 million as penalties. But the price increases were not a direct effect of deregulation. Other countries like Thailand. when prices of petroleum products abroad increase. The bottom line is increasing oil prices are due to the increases in the world price of oil compounded by the depreciating value of the peso. Generally. RA 8180 also prohibits cartelization and predatory pricing and sets three years' imprisonment and a fine ranging from P500. The country has been experiencing oil price increases even before deregulation took effect. To prevent possible abuse. There is a lag in the response of domestic fuel prices and this implies that there will likely be sharp changes in the early part of 2000.