Oil prices are on track to hit $100 a barrel in September after Brent crude topped $95 a barrel on Tuesday, according to market players. Production curbs by Saudi Arabia and Russia, which were intended to support oil prices, auspiciously combined with an improving outlook for the US and China to drive prices higher.
The International Energy Agency warned last week that the current export curbs by the two Opec+ leaders would create a “significant supply shortfall,” which poses a considerable threat to ongoing price volatility.
In light of increasing oil supply constraints, Chevron CEO Mike Wirth predicted oil prices to hit $100 a barrel. Goldman Sachs Group Inc. also raised its forecast for crude oil back to triple digits as demand booms and Opec+ supply curbs tighten the market.
Senate Minority Leader Koko Pimentel on Tuesday prodded the Marcos administration to suspend the excise tax on imported oil and bio-ethanol as immediate measures to bring down the prices of fuel in the country. “The suspension of the excise tax could offer a temporary respite and serve as an effective lifeboat for Filipinos struggling to cope with the sky-high fuel prices,” the senator said.
The Finance Department cautioned against suspending taxes on oil products, saying it would do more harm than good as it would hike the national government’s budget deficit and debt-to-GDP ratio while derailing the country’s fiscal recovery. (Read the BusinessMirror report: “Finance Department warns against suspending oil taxes, citing economic risks,” September 20, 2023).
“The proposals will adversely affect our economic and fiscal recovery, our international credit ratings, and our overall debt management strategy, while benefiting primarily the rich and without providing lasting inflation relief,” Finance Secretary Benjamin E. Diokno said.
Pimentel held out hope that the government understands the gravity of the situation and the urgency of intervention to alleviate the situation of countless Filipinos struggling with skyrocketing fuel prices. “Every week, our fellow Filipinos face the challenge of ever-increasing fuel prices,” the senator said, stressing that “they need a lifeline now.”
The think tank Infrawatch also sought more decisive government action as people continue to be whipped by the impact of rising fuel costs, negating hopes of easing inflation.
Diokno, however, pointed out that the government will lose about P72.6 billion in revenues in the fourth quarter alone if the VAT and excise taxes on petroleum products are lifted.
The DOF’s calculations showed that the state’s full-year revenue loss from the suspension of the VAT and excise taxes on oil products could reach P280.5 billion (P168.2 billion in excise taxes and P112.3 billion in VAT) or about 1.1 percent of GDP.
The Finance chief argued that the proposals being floated would only “benefit the top 10 percent of households that consume around 49 percent of total fuel consumption.” He noted that the bottom half of households consume only around 10 percent. “It would be best to just provide targeted subsidies to the poor who are affected by the high fuel prices such as jeepney operators, farmers, and fisher folks,” Diokno said.
But Pimentel drew attention to the direct impact on people if the situation is allowed to continue without government intervention: “If the sky-high prices of fuel products are not promptly addressed, the country can expect inflation rates to soar, further impacting the economic well-being of every Filipino.”
Policy think tank Infrawatch PH called for government action following a significant oil price hike on Wednesday. “Today’s oil price hike is a severe blow to Filipino households already stretched thin,” said Infrawatch PH Convenor Terry Ridon. “The government must act before the situation spirals out of control.”
The think tank noted that Speaker Ferdinand Martin Romualdez’s dialogue with oil executives on Monday is unprecedented, as no House speaker has ever confronted oil price hikes with the same level of urgent intervention.
Ridon also supported Romualdez’s suggestion to open the Oil Deregulation Law (Republic Act 8479) for congressional review. “This 25-year-old law has long outlived its usefulness. Enacted in 1998, the law has led to frequent and unregulated price adjustments, affecting everything from public transportation to the cost of basic commodities. This law has given oil companies free rein over pricing, and the public pays the price,” Ridon said.
There’s a silver lining for every crisis. If the current surge in oil prices will push our government officials to craft policies and strategies that will produce a positive result for the Filipino people, then the crisis managed to awaken their zeal for the public good. The ball is firmly in the court of our policymakers, and the nation is watching how the play unfolds.