Government mulls oil stockpiling

Pressure on prices after Opec output cut

MANILA, Philippines - The government is considering stockpiling oil as prices are expected to go up amid the peso depreciation and after major oil producers finalized a deal to curb supply in the global market.

State-owned Philippine National Oil Co. (PNOC) is undertaking a study to put up a strategic reserve amid volatile global oil prices, Energy Secretary Alfonso Cusi said in an interview with reporters.

Among the factors being examined are the cost and the infrastructure needed for oil stockpiling.

“(Stockpiling) will be evaluated. Money is needed as well as infrastructure because we really don’t have the necessary infrastructure,” Cusi said. “Our reserve is good for 30 days unless we come up with a policy, but that will take time.”

Currently, stockpiling is being done by private oil companies.

Stockpiling is a practice common among developed countries, such as the United States and Japan, to address supply disruption. Strategic stockpiles act as reserves and are released only during times of supply disruption, thus only crude oil is generally maintained in strategic stockpiles.

On Wednesday, Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members have agreed to cut oil production starting next year to bolster international oil prices.

Meanwhile, the peso has been hovering near the 50:$1 level due to a stronger dollar amid news the US Federal Reserve would raise interest rates this month. Dollars are used in importing oil so a weaker peso would stoke local petroleum prices.

“This is a deregulated industry so it will either be going up or down depending on market outlook,” Cusi said.

Previously, the Philippine oil market was under a regulated regime where local oil prices were controlled and dictated by the Energy Regulatory Board, now the Energy Regulatory Commission (ERC).

But with the passage of the Oil Deregulation Law of 1998, prices are now dictated by outlook and movements in the global market. It also allowed other oil players to come in aside from the three oil giants operating in the country, namely Petron Corp., Pilipinas Shell Petroleum Corp. and Caltex Philippines Inc.