An illuminating backlash against deregulation is taking shape in a corner of the oil market important for reasons other than size.

An illuminating backlash against deregulation is taking shape in a corner of the oil market important for reasons other than size.

To appease opponents of deregulation frothy over this year's increases in the price of oil, the Philippines government has ordered a new study of a proposal it dislikes for a state oil exchange.

Through the end of 1999, the Oil Industry Deregulation Act is estimated by the Department of Energy to have attracted $250 million of investment and 53 new players to the Philippines' oil market.

But this boost to long-term competition has been temporarily overwhelmed by a swing in the global market that, since March 1999, has nearly tripled the price of crude oil.

Making matters worse for oil consumers in the Philippines, the peso since March 1998 has lost about 15% of its value against the US dollar.

The popular tendency is to blame soaring prices of oil products on deregulation and to throw suspicion on companies that own the island nation's three refineries, which have total distillation capacity of 401,000 b/cd.

Pres. Joseph Estrada, who was elected in May 1998, remains committed to oil-market deregulation and to economic liberalization in general. His government has so far opposition to creation of what would be called the National Oil Exchange Corp. (NEOC). That it felt obliged to restudy NEOC legislation shows strength of the anti-deregulation backlash.

The state-owned NEOC would handle all purchases and distribution of oil products. Its supporters say centralization of those functions within government would lower oil prices at the consumer level. They are wrong.

For a 370,000 b/d market nearly totally dependent on imported crude and product, consolidation would create no purchasing leverage.

And transfer of purchasing and distribution to a government entity would hurt consumers' interests in a number of ways.

It would breed inefficiency and encourage corruption, which would elevate prices over time. It would discourage investment in the oil market, limiting competition. And by in these ways aggravating the very problems it would have been created to address, the NEOC would brake economic growth, estimated at 3.2% in 1999 and projected at 4% this year.

If the Philippines proceeds with this mistake, effects elsewhere in the world will be slight. The oil industry outside the country certainly stands to lose little beyond the volumetrically insignificant market growth that would fall victim to the nation's sacrifice of economic growth.

But there is a lesson here. It has to do with how quickly people submit to government seductions when markets move in directions they find uncomfortable.

The Philippines is hardly the world's only recently liberalized country susceptible to backsliding. The oil and gas industry should hope that the NEOC never materializes and that the state-centered thinking behind it never gains credibility in the Philippines or anywhere else.

Market freedom guarantees nothing about price except variability. It is a nasty trick of politics to feed on the cycles of discontent that inevitably result from price variability-and to limit human fortune in the process.

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