Slow to lower prices

Go figure how gasoline stations in Bulacan and other provinces are able to consistently sell gasoline and diesel about four pesos cheaper per liter compared to pump prices seen in Metro Manila.

Go figure how card-carrying members of a shoppers’ club are able to get three pesos off to the liter while Muntinlupa and Las Pinas residents get discounts of at least a peso per liter.

The wide disparity in fuel prices from one gas station to another franchised by the very same petroleum companies somehow bolsters public suspicion of big profit spreads being enjoyed by oil companies.

Question is, if oil companies are required at least 15 days of buffer stock, how come pump prices fluctuate on a weekly basis – every Tuesday – instead of changing every 15 days?

It’s because local pump prices are benchmarked every Monday based on Mean of Platts Singapore (MOPS) and not on any of the three primary benchmarks based on actual crude prices such as West Texas Intermediate (WTI).

MOPS is the daily average of all trading transactions between petroleum buyers and sellers as assessed and summarized on a weekly basis by Standard and Poor’s Platts, a Singapore-based market wire service.

With MOPS, the peso-dollar exchange rate also comes into play in determining fuel pump prices as the peso landed cost of bringing in the finished oil products vis-à-vis their acquisition costs in dollars is computed on a week-on-week basis.

On paper, there may be nothing inherently wrong benchmarking with MOPS. In theory, at least, benchmarking with MOPS should result in local fuel pump prices going down or going up based on a formula and a computation that is transparent and the variables checked for accuracy against padding.

But how come local pump prices go up so fast with any slight upward movement in global oil prices as reflected by MOPS, and then too slow to go down when global crude prices have gone down?

There is a disconnect somewhere in the benchmarking, in the computation of the landed cost and the final determination of pump prices that may be to blame for why fuel pump prices are slow to come down?

Whatever the reason for the above, it is high time that experts tilting heavily in favor of fuel end-users take a long, hard look at the formula used to determine fuel prices, if only to guard against excessive profiteering.