Demand Analysis for Crude Oil in the Philippines, 2000-2020

Date

6-2023

Degree

Bachelor of Science in Agricultural Economics

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Jayson S. Cabral

Committee Member

Julieta A. Delos Reyes, Agham C. Cuevas

Abstract

Oil plays a crucial role in the economy, primarily in production and marketing. In the Philippines, oil is used by the transport, commercial and public services, residential, industrial, agriculture, forestry, and fisheries (AFF), and non-energy use sectors. Over the past year, the price hikes of oil-derived products like diesel and gasoline have brought attention to the topic in the country. This study was conducted to analyze the behavior of crude oil demand across sectors. Time study was conducted to analyze the behavior of crude oil demand across sectors. Time series data and fuel consumption by sector were visualized through line graphs to understand the trajectory and behavior of the data. Econometric analysis was also done to identify and determine the relationships of the factors influencing crude oil demand.

Among the sectors, crude oil demand was generally increasing in transportation, commercial and public services, and non-energy use sectors. However, the industry sector exhibited a downward trajectory, while AFF, as well as the residential sector, did not show any discernible trend. Oil extraction did not follow a specific trajectory likely due to various production-specific factors such as OPEC production cuts, refinery shutdowns, reduced input usage, and the impact of the pandemic leading to decreased demand. Additionally, oil reserves significantly decreased in recent years, with the Middle East remaining the top source of crude oil imports for the Philippines.

In terms of elasticity, crude oil demand was found to be income inelastic in the transportation and AFF sectors, income elastic in the commercial and public services sector and among non-energy users, and insignificant in the industry and residential sectors. Real GDP showed a positive and significant relationship with crude oil demand in all sectors except for the industrial and residential sectors. It was elastic for commercial and public services and non-energy uses, and inelastic for the transportation and AFF sectors. Regarding price elasticity, the industry, residential, and commercial and public services sectors exhibited price inelastic demand. Non-energy users showed price elasticity, while the transportation , commercial and public services, and AFF sectors showed insignificant relationships. These findings align with the law of demand, as prices demonstrated a negative relationship with crude oil demand in the sectors with significant relationships. The study also found that crude oil demand was inelastic to the real exchange rate in the transportation and AFF sectors. For the remaining sectors, the relationship was insignificant. A positive relationship was observed between the real exchange rate and crude oil demand for both sectors, indicating increased demand when the Philippines Peso depreciates.

The Philippines, being dependent on oil imports and lacking domestic resources, needs to conserve crude oil by prioritizing energy efficiency and conservation measures. The government should support the transition to renewable energy through research, development, and infrastructure establishment. Promoting energy-efficient technologies at the institutional level is crucial to reduce oil consumption and allocate resources to sectors like public transportation. Repealing excise taxes on oil can help ease the burden on residential consumers. The relationship between the depreciation of the Philippines Peso and crude oil demand suggests the need for strict regulation of foreign currency reserves to prevent excessive transfer costs and protect the transportation and agricultural sectors from weakened purchasing power.

Language

English

LC Subject

Petroleum industry and trade, Supply and demand

Location

UPLB College of Economics and Management (CEM)

Call Number

LG 993.5 2023 A14 F36

Notes

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Document Type

Thesis

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