No price drop soon despite Hormuz pass for PH-bound oil
Despite Iran’s promise to allow safe passage for Philippine-bound oil through the Strait of Hormuz, it is unlikely that fuel prices at the pump would soon come down from where they have risen since the Middle East conflict erupted on Feb. 28, petroleum industry sources said on Saturday.
Manila obtained Tehran’s assurance following a “very productive” phone conversation between Foreign Affairs Secretary Ma. Theresa Lazaro and Iranian Foreign Minister Seyed Abbas Araghchi last Thursday.
“During the call, the Iranian Foreign Minister assured the secretary that Iran will allow the safe, unhindered, and expeditious passage through the Strait of Hormuz of Philippine-flagged vessels, energy sources, and all Filipino seafarers,” the Department of Foreign Affairs (DFA) said in a statement.
The Strait of Hormuz, now controlled by Iran, is a vital global oil transit chokepoint, with about one-fifth of the world’s crude oil supply moving through it.
The critical element in the DFA statement points to the safety assurance not only for Philippine-flagged ships—of which the country has only a few—but also for Philippine-bound shipments of “energy sources,” including crude, oil products and natural gas.
According to the Department of Energy (DOE), 98 percent of the country’s crude oil imports come from the Middle East. About 97 percent of imports of liquid petroleum products—diesel, gasoline and kerosene—are from Asian countries that process largely Middle Eastern oil.
Calming effect
For Leo Bellas, president of Jetti Petroleum, the safe passage of Philippine vessels could “help boost and secure the country’s supply.”
He told Inquirer that this development “helps unwind some of the risk premia that have built up because of the Middle East conflict.”
Energy law expert Jose Layug, Jr. said Iran’s gesture could help calm Filipinos’ supply fears.
Filipinos have seen double-digit price per liter increases every week since the war broke out, particularly of diesel, the main fuel for passenger and cargo transport.
Meanwhile, the government lacks the authority to dictate or cap prices under the Oil Deregulation Law. On top of that, the excise on fuel—P10 per liter of gasoline and P6 per liter of diesel—has yet to be suspended. The earliest this will be lifted is on April 12 or April 13 under Republic Act No. 12316 which allows the president to suspend or reduce the fuel tax.
According to DOE records, in the days surrounding the US-Israeli attacks against Iran (Feb. 24 to March 2), diesel in Metro Manila was priced at P48 to P73.61 per liter. This has risen to P105 to P140.20 a liter from March 24 to March 30. Gasoline ranged from P50 to P77.03 per liter before the war, rising to P84 to P111.10 per liter last week.
It’s complicated
Sources interviewed by the Inquirer said the reality of oil product pricing was more complicated than just Iran’s assurance of safe passage for oil tankers.
The war in the Middle East triggered chaos in the global oil market, prompting other countries to shut down their export operations to conserve supply.
Market disruptions and supply woes swelled global oil prices.
Five weeks into the war, Brent crude—the international benchmark for oil—had risen by 51 percent to $109 per barrel from $72 per barrel before the bombardment of Iran.
The International Energy Agency’s (IEA) Oil Market Report for March highlights said that disruptions to oil flows through the Strait of Hormuz contributed to a significant supply shock, and global oil markets were affected by factors such as crude prices, shipping and insurance costs.
Assurance not enough
The IEA noted that continued shipping disruptions would heavily influence wholesale prices and overall supply, indicating that navigational assurances alone are not enough to immediately ease pump prices.
“The war in the Middle East is creating the largest supply disruption in the history of the global oil market,” the report said.
“With crude and oil product flows through the Strait of Hormuz plunging from around 20 mb/d [million barrels per day] before the war to a trickle currently, limited capacity available to bypass the crucial waterway, and storage filling up, Gulf countries have cut total oil production by at least 10 mb/d. In the absence of a rapid resumption of shipping flows, supply losses are set to increase,” it added.
Even if oil supplies were a direct factor in fuel price reduction, lower prices won’t be seen by Filipinos soon as it would take around two weeks for any shipment to reach the country and its sole oil refinery operated by Petron Corp.
Oil tankers passing through the Persian Gulf to Southeast Asia usually travel at around 11.5 knots to 12.5 knots, according to S&P Global Commodity Insights. Based on those speeds, it would take tankers 13 to 19 days to reach Southeast Asia.
Petron said last week that two of its shipments scheduled for Feb. 28 and March 7 were cancelled due to the war.
Philippine oil companies and the government have been aggressive in securing fuel supply, including through a more expensive process, such as bidding.
De-escalation is key
All sources who spoke with the Inquirer provided similar statements—a drop in pump prices was not guaranteed and may be a far cry from expectations.
Brigitte Carmel Lim, senior vice president and COO of Cebu-based fuel company Top Line, said Iran’s assurance “does not automatically mean prices will go down, as global oil prices are still driven by geopolitical tensions and market sentiment.”
“At this point, the main impact is on price volatility rather than supply, and we continue to closely monitor developments,” Lim said in a message.
Bellas said prices would cool down with “more signals of de-escalation” in the conflict.
Layug said that the oil market “continues to be volatile and adversely reacts to a drawn-out Middle East conflict.”
Tehran had designated some countries as “friendly” and allowed safe passage through the Strait, while those who supported the attacks on Iran as “hostile.” According to various media reports, the “friendly” ones included China, India, Russia, Pakistan, Iraq, Japan, Thailand and Malaysia.
The Philippines is a treaty ally of the United States but it is not involved in the attacks on Iran.
First-time crossings
One French- and another Japanese-owned vessel were among a handful of ships that crossed the Strait, a maritime tracking data showed Friday.
Both ships made the crossing on Thursday, according to ship tracking company Marine Traffic’s website.
The Maltese-flagged Kribi belonging to the French maritime transport group CMA CGM crossed the waterway on Thursday afternoon.
The vessel’s navigation data showed it had crossed via an Iranian-approved route through its waters, dubbed the “Tehran Toll Booth” by leading shipping journal Lloyd’s List.
In addition, three tankers—including one co-owned by a Japanese company—crossed the Strait on Thursday by taking an alternative, southern route close to the shore of Oman’s Musandam Peninsula, according to Lloyd’s List.
Each of the three tankers signaled that it was an “OMANI SHIP” while crossing the Strait, a move to ensure safe passage.
The Sohar LNG, which was empty, is co-owned by Japanese shipping company Mitsui O.S.K. That makes it the first Japanese vessel to exit the Gulf since the start of the war, according to a company statement quoted by Japanese media.
Just 221 commodities vessels have crossed the Strait since March 1, some more than once, according to Kpler data.
In peacetime, the same waterway handles around 120 daily transits, according to Lloyd’s List.
In the early days of the war, transponder data showed dozens of ships broadcasting messages such as “Chinese crew” or “Chinese owner” in the field usually used for their destination.
This appeared to be an attempt by the ships to avoid being targeted by Iran. —WITH A REPORT FROM AFP
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