A Warning Shot at the Philippine Oil Industry

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Investors should prepare for any backlash spoiled Philippine oil giants may have

Philippine Stocks involved: Petron (PCOR), Pilipinas Shell (SHLPH)

The Philippines’ Department of Energy has identified Petron, Pilipinas Shell, and Chevron as the major oil companies in the country.

As of June 2017, Petron held a market share of 28.6% of total petroleum products, Pilipinas Shell with 20.7%, and Chevron with 6.6%.

At the time of this writing, Petron has a full market value of 90.8 billion pesos, and Pilipinas Shell at 96.7 billion pesos. Talking about some overvaluation for Shell, but this could be further dissected at a separate time.

Chevron Philippines, meanwhile, is not publicly listed but operates nearly 700 Caltex service stations in the country with other business interests including its 45 percent non-operated working interest in the Malampaya gas-to-power project, according to the company’s website.

Using historical data, there was actually an asymmetric pattern response in Philippine retail gasoline price response to crude oil price changes. This was found in a study made by Jaewook Kim in 2012 whereby oil price information was gathered from 2005 to 2010.

(Link to the study: Behavior of Retail Gasoline Prices in the Philippines to Changes in Crude Oil Prices: Is it Symmetric or Asymmetric? Jaewook Kim)

Kim stated that rather than using WTI or Brent oil price in comparison, Dubai crude oil is more fitting when comparing to the Philippines retail gas price.

In a more recent period, Dubai crude price has climbed 4.1% to $55.58 a barrel since January to October 2017, but the Philippine retail gas price has risen 300% more than Dubai’s or at a rate of 12.4% to 48.85 pesos per liter in the same period.

In the United States, where latest oil & gas technologies are being applied, retail gasoline price has risen 4.4% to $2.59 per gallon.

Are these local refiners grinding more and therefore need to raise their prices this much? Or these unified price hikes are just a market manipulation managed by the big oil players in the Philippines?

To boot, the Philippines has not suffered like what Texas to Louisiana areas have to deal with the hurricanes Harvey and Maria recently this year where refineries were shut down and refined products drop afterward.

Nonetheless, one thing Filipinos should hope for and also vigilantly follow is the newly re-assembled investigative team, the Department of Energy and the Department of Justice Task Force, in determining if there are market abuses being employed by the oil companies.

If proven, painful penalties could be a result.

Disclosure: I do not have shares of any of the companies mentioned.

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