30 April 2026 – Before the Downstream Oil Industry Deregulation Act of 1998, the country’s oil industry was tightly controlled by just three major players: Shell, Petron, and Caltex. Each had its own refinery and was required to keep a 60-day fuel supply. Fuel prices were set by the government and adjusted only every two months based on earlier crude oil costs, creating a delay in reflecting global price changes. When world oil prices went up, consumers benefited from temporarily lower local prices. But when global prices went down, people often complained because local pump prices took longer to decrease.

After deregulation in 1998, the market shifted to a more dynamic pricing mechanism that better reflected prevailing international prices. Local prices began to be adjusted weekly using the prior week’s average Mean of Platts Singapore (MOPS) for petroleum products as the benchmark. This allowed consumers to more easily relate domestic price movements to global market changes.

Another major reason for this pricing shift is that the industry has fundamentally changed. Previously, the market was dominated by three oil companies, each with its own refinery. Today, there are more than 20 oil companies, with about 70% of products coming from finished product imports and only 30% supplied by the country’s sole remaining refiner. Because most supply is now imported as finished products rather than crude for local refining, pricing is no longer based on crude benchmarks.

Inventory rules also vary. Refiners like Petron must keep at least 60 days of fuel supply, while importers only need 15 days. If pricing strictly followed First-In, First-Out (FIFO), refiners would take longer to adjust prices than importers, creating unfair pricing differences. Using prior week’s MOPS-based pricing helps create fairer competition and allows prices to respond faster to global changes.

Because of the current crisis, there are renewed calls to build bigger strategic fuel reserves and impose fuel price caps. Under normal conditions, the country’s fuel supply averages about 30 days. This is based on refiners, which supply about 30% of the market, keeping 60 days of stock, while importers, which supply about 70%, keep only 15 days.

Building larger strategic fuel reserves would be extremely expensive. If the country uses about 500,000 barrels of oil per day, adding just 30 more days of supply would cost around $1.5 billion at $100 per barrel, not including storage facilities. New storage tanks are also costly, with each one million-barrel tank costing $80 million to $200 million. Overall, adding a 30-day reserve could cost about P200 billion. Policymakers must consider whether this is affordable and the best use of limited public funds, especially since major global oil supply disruptions have only happened a few times since 1973.

Rather than relying only on costly stockpiling, a more practical approach may be to diversify supply sources and build strategic petroleum partnerships with allied countries, similar to the ASEAN Petroleum Security Agreement model.

As for fuel price caps, while politically attractive, they often do more harm than good. Artificially suppressing prices can cause supply shortages, discourage investors, reduce foreign investment, and create long-term instability. Instead of distorting markets, the government should focus on areas where it has greater control.

This crisis can be an opportunity to reset the economy by improving productivity, reducing inefficiencies, and strengthening self-sufficiency, especially in food and energy. We should review the entire value chain, from production or importation to storage, delivery, and consumption.

Existing business models and technology can help speed up progress. Logistics can be optimized so delivery vehicles do not return empty after shipments. Solar energy can be installed in government buildings, especially public schools, to reduce electricity costs. Weather and soil data can guide farmers on what to plant, where, and when, improving yields while reducing waste. Transparent pricing can help raise farmer incomes while lowering consumer costs.

In each of the value chains there are “friction costs” which add to the price of goods, e.g. LGU “toll fees”, congestion port charges, etc. We need to firmly address this in the same way that the DILG addressed the long standing corrupt practices at the Bureau of Fire Protection.

Public-private partnerships can also help fund and execute reforms. However, the criteria for selecting winning proponents should prioritize who can provide the lowest cost and best service to the public at the shortest possible time.

As the saying goes “never let a good crisis go to waste”. Let us use this opportunity with a renewed sense of urgency to drive major changes to improve our policies and processes, address corruption, foster innovation and make our country more resilient and attractive for investment. This way our country will come out of this crisis reborn and capable of achieving its full potential!

Edgar Chua is the Chairman of the Makati Business Club.

This article was published under the Business Matters Column of INQUIRER. Business Matters is a project of Makati Business Club.