DOE meeting oil firms on Saudi attack fallout

By BusinessMirror- September 17, 2019 By Lenie Lectura & Jovee Marie N. dela Cruz

https://businessmirror.com.ph/2019/09/17/doe-meeting-oil-firms-on-saudi-attack-fallout/

THE Department of Energy (DOE) will meet local representatives of oil companies this week to discuss ways to deal with the possible adverse impact on pump prices of the drone attacks on Saudi Aramco’s facilities, described as the single worst massive disruption to oil markets.

This, as oil posted its biggest ever intraday jump to more than $71 a barrel after a strike on a Saudi Arabian oil facility removed about 5 percent of global supplies, an attack the US has blamed on Iran. Related story in World, page A9, “Oil prices post biggest jump after attack on Saudi facility.”

“The DOE is set to meet with oil companies this week to look into the sufficiency of inventory levels. The impact to prices, if any, may be felt by Tuesday next week. That is, if there will indeed be an adverse impact. To date, the DOE reiterates that the impact of the  incident is still premature,” said the agency.

The DOE was urged by the chairman of the Senate energy committee “to put energy security at the forefront of its energy direction by diversifying our oil supplier portfolio in the wake of the attacks,” claimed by Iranian-backed Yemeni Houthi rebels.  “Doing so would insulate consumers from price volatility,” added Sen. Sherwin Gatchalian.

In a statement on Monday, Gatchalian said, “Unforeseen external disruptions on the oil supply chain, such as what happened in Saudi Arabia, can create massive disruptions in our local transportation and power sector.” In fact, he noted, “the Philippines has been importing 33.7 percent of its crude oil from Saudi Arabia as of 2018, making [Saudi Arabia] the top supplier of crude oil in the country.”

On Sunday, the DOE convened an emergency meeting with members of the energy family (DOE-Electric Power Industry Management Bureau; DOE- Oil Industry Management Bureau; NEA; NPC; PNOC; and PNOC-EC) at the DOE’s headquarters in Taguig City.

“We are seeking to ensure that the energy family will be sufficiently prepared to face the potential impact of this unfortunate incident, if any, on the country,” the DOE reported in a statement on Monday.

“Rest assured that the DOE, together with the entire energy family, is closely monitoring the situation, and will keep the public properly informed of developments on the matter,” the agency said.

It added, that it “is closely monitoring developments in the international markets until the last trading day on Friday to fully assess any impact on the prices.”

Shell, Petron react

Pilipinas Shell, for its part, said Monday afternoon that it is also closely monitoring the situation in Saudi Arabia and the world markets. “We are saddened by the unfortunate incident. We hope that no one was injured and that the situation will soon be brought under control.

Rest assured that Pilipinas Shell will exert all effort to ensure continuous supply of fuel to the motoring public and all our customers,” said company Media Manager Cesar Abaricia.

Petron Corp. also assured the public  that there will be no supply disruption, saying it has  adequate supply to support domestic requirements.

“Petron Corporation regrets the recent attacks made on Saudi Aramco’s refinery facilities, affecting oil output on an international scale. We are closely monitoring the situation and hoping that normalcy will be restored soon,” it said.

Gatchalian said the DOE, in tandem with the local oil industry suppliers, should formulate a contingency plan that will temporarily replace Saudi oil in the short term until supply is normalized. “The DOE should also ensure that oil companies and refiners comply with the required minimum inventory of 15 days and 30 days, respectively, to cushion the impact of this disruption,” the energy panel chief added.

Unbundled data

At the House of Representatives, a party-list lawmaker aired concern that without the unbundled data of oil prices in the country, there may be exorbitant oil price hikes.

Bayan Muna Rep. Carlos Isagani Zarate called for an immediate hearing on House Resolution 9 directing the House Committee on Energy to conduct an inquiry on the alleged predatory pricing and/or overpricing of oil products hidden by their unbundled oil prices.

Zarate, citing media reports, said Iranian-backed Houthis group in Yemen claimed responsibility for attacks that shut two plants at the Abqaiq facility, the heart of the Saudi oil industry, which will cut the kingdom’s production by about 5.7 million barrels per day, more than half of the kingdom’s output or 5 percent of global supply from the world’s biggest crude exporter.

He said this resulted in oil price hikes estimated at Gasoline P1.40 to P1.60 per liter, Diesel P0.70 to P0.80 per liter, and Kerosene at P0.90 to P1.00 per liter.

“The problem with this is that without the unbundled data on oil prices, how can the public know that these are not overpriced? Just like in electricity and water, the public has a right to know how fuel prices are determined so that they can be vigilant against overpricing and market abuses,” said Zarate.

“While everyone knows the cost of fuel in the international market, no one, even government knows the cost after fuel is landed in our ports. The bombing could be used by fuel companies as justification to overprice since it has remained unbundled until today,” added the lawmaker.

In House Resolution 9, Zarate said the people deserve a full and transparent explanation from oil companies as to the formula in computing higher fuel prices in their area.

“For one, if prices can be lowered in Mindanao or other parts of the country, then, there is no reason why prices in the rest of the country cannot be lowered as well,” he said.

Biggest oil-price jump

In an extraordinary start to trading on Monday, London’s Brent futures leapt almost $12 in the seconds after the open, the most in dollar terms since they were launched in 1988. Prices have since pulled back about half of that initial surge of almost 20 percent, but were still heading for the biggest advance in almost three years.

For oil markets, it’s the single worst sudden disruption ever, and while Saudi Arabia may be able to return some supply within days, the attacks highlight the vulnerability of the world’s most important exporter.

They also add further political risk to prices, raising the specter of more destabilization in the Middle East and the threat of US retaliation against Iran.

“We have never seen a supply disruption and price response like this in the oil market,” said Saul Kavonic, an energy analyst at Credit Suisse Group AG. “Political risk premiums are now back on the oil market agenda.”