Philippine Standard time

Reviving the Oil Price Stabilization Fund: Risks and Alternatives


The Philippine Institute for Development Studies (PIDS) will hold a public webinar on June 9, 2022, from 2:00 PM to 4:30 PM via Cisco Webex.

This virtual event will feature the PIDS study “On the OPSF and the Downstream Oil Industry Deregulation: Lead Us Not into Reversal Temptation and Deliver Us from Obfuscation” authored by PIDS Senior Research Fellow Adoracion Navarro. This study was conducted as a response to recent calls for the revival of the Oil Price Stabilization Fund (OPSF) amid rising prices of oil products caused by Russia’s invasion of Ukraine. If pushed through, the OPSF revival is tantamount to a reversal of the downstream oil industry deregulation that began in 1998. Tracing the history of the OPSF and why the downstream oil industry was deregulated, the paper underscored how petroleum price setting by fiat and using a price stabilization fund to smooth the price resulted in mismatches between payments to the fund and claims against it. The public then ended up subsidizing oil consumers. Price distortion also resulted in cross-subsidization that created mismatches between demand and environmental objectives. Instead of reviving the OPSF, the paper argues for improving the deregulation law by institutionalizing the minimum inventory requirement and implementing retail price unbundling. Having a strategic oil reserve also deserves examination, which, if proven feasible and affordable, should be viewed strictly as a buffer during severe oil supply disruptions rather than as a regular price stabilization tool. The paper adds that having targeted assistance programs that facilitate direct income transfer to the poor is more advisable than reviving the OPSF. 

A copy of the study may be downloaded from this link: https://pidswebs.pids.gov.ph/CDN/document/pidsdps2216.pdf.