Free fall

’Tis truly the season to be merry – at least for motorists who are enjoying the global free fall in fuel prices.

 Almost every two or three days I happily note a hefty cut in pump prices, with the latest yesterday at P1.75 per liter of diesel. This is happening in winter when global fuel consumption is usually high.

Public rejoicing would be greater if prices of other goods and services would also go down. But so far the best that we can see are minimal reductions or a price freeze.

World crude prices have plunged by nearly 50 percent since June, closing last Friday at a five-year record low of $57.81 per barrel. There’s disagreement among industry analysts on when it would hit rock bottom.

The plunge has been reflected in local pump prices, but with no corresponding substantial reductions in fuel-sensitive goods and services such as transport fares and power costs.

 In several sectors, prices are even expected to rise. Maybe they believe the plunge, which is predicted to continue at least until the first half of 2015, is just a blip, that in the oil industry, what goes down inevitably goes back up with a vengeance.

Since last November, several manufacturers or distributors of various products have notified regular clients of price increases starting either this month or in January.

Although investors acknowledge the benefits from the fuel price cuts, they blame rising costs to the continuing congestion in the Port of Manila and other problems bedeviling the business community.

Last week an importer showed me an unsightly lump of chocolate that used to be coin shaped – the result of sitting for an eternity in the heat of the port while the shipment waited for clearance. The chocolate is still edible, but no one is going to buy it in that state. He’s stuck with an entire shipment of the ruined merchandise that was meant for the holidays. What else could he do, he sighed, but charge it to experience?

Importers with deeper pockets have resorted to much more expensive air freight to ensure the freshness of their products. They are initially absorbing the added cost, but eventually we can be sure that it will be passed on to consumers.

More expensive raw materials mean pricier end products. Congestion persists in the Port of Manila, due to a combination of sheer inadequacy of port facilities, inefficient systems and, yes, corruption – with the last two factors most likely interlinked.

*      *      *

In the case of certain products, prices are pushed up by cartels. Last week, for example, native garlic was being retailed at a jaw-dropping P570 to P585 a kilo in supermarkets. Ginger was at P200 a kilo, and that was in the Quiapo market.

Last week President Aquino ordered the Department of Justice to build a case against a cartel reportedly consisting of four individuals who have cornered garlic supply allegedly in connivance with agriculture officials and who caused prices to spike starting last year. Seeing how similar orders have failed to bring down rice prices, no one is holding his breath.

Transport fares affect prices of agricultural products, but many other factors come into play, including the weather, electricity and water costs. Most people are aware of this. But when people see the price of jeepney and bus fuel dropping to P30.60 per liter or about 30 percent within six months, they wonder why minimum transport fares are down by only P1 and electricity by only a few cents per kilowatt-hour.

In the case of electricity, some industry analysts are saying that the fuel price plunge may allow players to recoup previous costs and forgo their planned price increases next year.

Even among those who understand that when it comes to pricing in a wide range of products, fuel price cuts have minimal impact, a plunge of about P4 per liter within a week can raise expectations of lower prices in other goods.

People then start ticking off in their minds the products whose prices refuse to go down – starting with the nation’s staple, rice, and crops that are grown in abundance in this country such as Ilocos garlic, ginger and onion.

Inevitably, blame for continuing high prices will fall on the shoulders of the administration.

*      *      *

World crude prices have been dropping partly due to slowing economies plus a slow but relentless shift to alternative fuels, and largely due to the Americans’ success in extracting oil and natural gas from shale through fracking, or using hydraulically pressurized liquid to break through rock.

Some members of the Organization of Petroleum Exporting Countries, notably Venezuela and Russia, are losing their swagger. But non-oil producers are enjoying the feeling of liberation – even if only temporarily – from being at the mercy of the OPEC cartel.

For the Philippines, the applause for falling fuel prices is tempered by concerns that an economic slowdown in the Middle East and other OPEC members such as Nigeria may mean drastic cuts in remittances of overseas Filipino workers.

With cheaper fuel, transport and power costs, people expect corresponding reductions in the prices of prime commodities, even if these are affected by other factors particularly the weather and holiday demand. As of last week, however, meat and poultry prices remained the same, whether in supermarkets or wet markets. Egg and rice prices, which have risen steadily in recent months, refuse to go down.

Public transport drivers and operators opposing the recent P1 rollback in minimum transport fares argue that prices of other goods and services remain high and rarely go down as people anticipate gas prices to rise again.

President Aquino will find himself under growing pressure to explain why the free fall in fuel prices is not being reflected in certain other products.

*      *      *

As anyone who has recently crammed on Oil Production 101 knows, environmentalists are warning about the hazards posed by fracking to safe water sources, air and soil quality and public health. Defenders counter that there is no pretty way of extracting crude oil.

What may affect fracking is the companies’ bottom line. Some industry experts reportedly believe that when crude falls below $60 per barrel, fracking – which is more expensive than traditional oil extraction methods – no longer becomes cost-effective.

Industry analysts see this as the reason for the refusal of the biggest oil producers in the Middle East to cut their output, in hopes that prices will dive down to levels where fracking becomes too costly, forcing a slowdown in US shale oil production.

We can sit back and enjoy the cheaper ride while it lasts. As for price cuts in other goods, we can just dream on.