HIGH oil prices, the expected offshoot of the knocking out by drone attacks of a big part of supply from Saudi Arabia, would likely “hurt” the downtrend in inflation this year, the National Economic and Development Authority (Neda) said, as energy officials gave assurances of a still-stable inventory and of contingencies being laid out while the situation is being tracked.
Socioeconomic Planning Secretary Ernesto M. Pernia told reporters on the sidelines of the Neda budget hearing on Wednesday that he hoped inflation would slow to 1.4 percent this year.
With the recent attack on Saudi Arabia’s oil facilities, however, there could be some uptick in inflation. Still, Pernia said, the impact would be temporary.
“I think it is going to be resolved sooner. It’s not going to be a long crisis,” Pernia said. “That’s really going to hurt our downward, downtrend inflation. We were hoping that inflation would go further down.”
Pernia said the Neda has not yet done any simulations on the impact of the oil issue on inflation because it may only be a temporary issue.
Local economists like Calixto V. Chikiamco told the BusinessMirror that the Saudi attack would likely cause a short-term price increase but it will depend on the duration of the tensions.
Chikiamco said if the situation does not worsen, the increases in oil prices would be contained given Saudi Arabia’s 90-day reserve and the reported increased oil production from Russia to plug the temporary supply disruption.
“The US has millions in barrels in strategic oil reserve, which they can, if they decide to, release to contain supply shock,” Chikiamco said. “It’s the growing tension between US-Saudi and Iran that is fueling the uncertainty and rise in oil prices.”
Based on data from the Philippine Statistics Authority (PSA), electricity, gas and other fuels has a weight of 7.435 in the Consumer Price Index (CPI) using a 2012 base year.
Political economist Maria Ella C. Oplas of the De La Salle University said progress on the efforts to address the situation will determine the increase in inflation.
“Oil prices are market-driven. We expect supply to go down because of the attacks in Saudi. Definitely, we should be ready for oil price increase depending on the damages,” Oplas said.
DOE: Supply enough
The Department of Energy (DOE) assured the public of uninterrupted fuel supply in the market after the drone attacks on Saudi Aramco’s facilities, but warned that pump prices could go up next week.
“There is no supply problem. If there are concerns on supply, they should not be worried,” said Energy Secretary Alfonso Cusi at Wednesday’s Kapihan sa Manila Bay.
The DOE would like to assure the public, he added, that “the inventory we have is sufficient to keep the economy running.”
The country relies heavily on imported fuel. With this, any price adjustment in local pump price reflects global oil price movements. “We don’t see a problem in supply. The problem here is the impact on prices. As to the rise in prices, we are dependent on the world oil market,” Cusi explained in a mix of English and Filipino.
On Friday, even before the attack, Cusi noted, “we saw in the world market [the increase in oil prices] because of world demand. We may feel that next week,” he said.
The DOE, he said, is closely monitoring developments in the international markets until the last trading day on Friday to fully assess any impact on the prices.
Prior to the weekend drone attacks, Cusi said world oil prices were already escalating. “But after the drone attack, the price in the market went up by 7 percent to 9 percent. Yesterday, it was more than 3 percent. Today, we just heard the good news that Saudi Aramco was able to restore and production will be back. We hope the price will not misbehave anymore and offset the first two days of spike.”
Laban Konsyumer Inc. (LKI), meanwhile, reminded the DOE to strictly monitor the oil companies’ inventory. “They should comply with the minimum inventory requirement of 30 days for crude oil and 15 days for finished products and seven days for liquefied petroleum gas [LPG],” said LKI President Victor Dimagiba in a text message.
Oil companies said they continue to closely monitor the situation in Saudi Arabia and the world markets. They also assured the DOE of continuous supply of fuel to the public. They adjust their pump prices every Tuesday.
Still, the DOE is preparing for contingency measures to address possible adverse impact on pump prices and petroleum supply.
Cusi said the planned oil importation, possibly from Russia is being reviewed. “The government is trying to have a strategic supply that we can use in case of emergency. We have been working on it. There are just some obstacles that we are working on, including the storage facilities. It takes time before it is completed but government is working on that strategic reserve,” he said.
The DOE chief added that agency experts are ready to meet with Chinese authorities to discuss a possible joint exploration to find more petroleum reserves.
“We will be meeting with the Chinese counterpart [to start that process]. The DFA [Department of Foreign Affairs] is the one doing the scheduling. The DOE [is] ready with our steering committee. We are ready with our technical working group,” said Cusi.
On Monday, the DOE said it will meet local representatives of oil companies this week to discuss ways to deal with the possible adverse impact on pump prices of the drone attacks on Saudi Aramco’s facilities, described as the single worst massive disruption to oil markets.
With a report by Lenie Lectura
Image credits: Senate PRIB Photo