Nearly three decades ago, neoliberal apologists, multilateral creditors, and the big oil companies peddled the lie of the Oil Deregulation Law that the so-called free market will ensure reasonable pump prices for the benefit of all. Today, that free market is telling the jeepney drivers, farmers and fishers, ordinary motorists, and households to endure the most significant oil price hikes in the country’s history. 

As the oil firms, economic managers, and energy officials have been telling the public for the past 26 years, these price adjustments are warranted. The crisis in Ukraine jolted world oil prices that have already been on a steady upswing since last year. A month before the conflict, crude oil prices as measured by the International Monetary Fund’s (IMF) index for global benchmark spot prices were 62% higher already than its level a year ago. 

Market forces

Oil price hikes in the first ten weeks of 2022 already surpassed the price increases in diesel and kerosene in the whole year of 2021. But we are told that it is only natural that the local pump prices are moving the way they do, given that the Philippines imports practically all its oil requirements. As always, under the Great Free Market, the price of oil will eventually find its proper place once the dust of uncertainties stirred by the inter-imperialist competition in Ukraine, the COVID-19 pandemic, etc., has settled. All of us just need to hang on tight and allow the forces of the free market to do their thing. In the meantime, policymakers hope that the most vulnerable sectors can get by the price shock through targeted cash assistance. 

Neoliberalism makes us believe that all we can do as hapless consumers is to try to survive the market’s wrath. This is what the fuel subsidy aims to achieve – a life jacket in a tumultuous and stormy sea of runaway prices. There is no guarantee of survival.

But who or what exactly are these market forces anyway? Neoliberal fundamentalists will tell us that they are the “supply and demand”. They do not say that supply and demand, and ultimately the determination of prices, are decided by people with vested commercial interests. They are not supernatural beings; they are just super-rich – the monopoly capitalists in the oil industry, the finance oligarchs, the OPEC+ cartel, and the local compradors. They are motivated by earning the most enormous profits in the fastest way possible. 

Paper barrels

The US ban on Russian oil triggered the latest surge in prices as Washington sought to widen the economic sanctions against its imperialist rival. The way that prices are behaving, it is as though a tenth of the global oil supply (the Russian production) has been wiped out from the market overnight, which is not the case. In addition, the US is only importing 8% of its crude oil and petroleum products needs from Russia, which it can easily offset from its domestic production or other oil-producing countries. 

According to the Organization of Petroleum Exporting Countries (OPEC), there is “no physical shortage” of oil. So, what is happening then? As in the case of major oil price volatilities this century, excessive speculation in the oil derivatives markets is pushing up prices, not the disruptions in oil’s actual or physical trading. 

Reports say that the volume of speculative trading in oil has surged since the Ukraine crisis erupted. In the US’s CME (the world’s largest financial derivatives exchange), the volume of buying and selling crude oil options or bets in oil’s future price has almost doubled from 126,000 daily in the first week of February to 240,000 contracts in the first week of March. These are all paper transactions, not actual, physical trading of oil, by financial players who profit from the volatility of oil prices. 

As OPEC said, futures markets are “paper barrels”, but in the physical market, supplies are guaranteed. And not only supplies are guaranteed in the physical market, but the prices also are covered by long-term supply contracts. In other words, the actual costs of physical oil – the diesel that a jeepney driver put in his tank – are not as volatile as the daily market reports make them appear.

The Philippines is not importing oil from Russia, whether crude or refined. Most of our crude oil imports come from Saudi Arabia (45%) and UAE (34%), while finished petroleum mainly comes from refineries in China (37%) and Singapore (18%). The Energy department said that there is no actual supply shortage in the country and that oil inventories or reserves can last for more than 40 days. 

Real impacts

But neoliberalism and deregulation exposed Filipino consumers to speculative paper barrels, resulting in weekly oil price hikes not justified by actual costs in production and trade. Worse, oil companies are exploiting the unregulated weekly price adjustments for profiteering. Based on this author’s estimates, the oil companies overpriced gasoline by around ₱6.58 per liter in 2021 by simply imposing higher oil price hikes or smaller rollbacks than they are supposed to implement based on regional price benchmarks. For diesel, the estimated overpricing is ₱4.74 per liter. In the first two months of 2022, gasoline is overpriced by ₱0.24 a liter and diesel by ₱2.22.

While prices are speculative, the impacts of the actual increases in pump prices are very much real and felt on the ground. The series of oil price hikes last year, for instance, potentially eroded a jeepney driver’s income to the tune of a month’s worth of his family’s rice consumption. The central bank fears that inflation could accelerate to as high as 4.7% in a worst-case scenario of $120-140 per barrel in global oil prices. At those levels, the average pump price of diesel and gasoline could be more than ₱69 and ₱78 per liter, respectively. Given the amount of speculation and the continued implementation of deregulation, it is not implausible. According to IBON Foundation, inflation has already eroded the minimum wage to just half of the family living wage in the capital region. Overall, the oil price crisis could wipe out around ₱330 billion of the domestic economy, and the Philippines is projected to have the sharpest drop in economic growth in Asia.

The people must rage against neoliberalism and deregulation. We can no longer allow being at the mercy of financial speculators, the profiteering oil companies, and the unaccountable global market. We can no longer afford to be content with cash aid and temporary relief while oil monopolies and finance oligarchs rake billions at the expense of our livelihoods. There are very concrete and doable steps that government can take to end the madness of the free market and truly protect the people and economy. ###