UNCERTAINTIES in the global economy arising from the trade war between the United States and China, among others, have led to the volatility in world crude oil prices, the Department of Finance (DOF) has pointed out.
According to the latest DOF economic bulletin, the volatility in Dubai crude oil prices was a result of the uncertainties in the global economy arising from the trade war, US President Donald J. Trump’s imposing sanctions on Iran, and declining production in Venezuela—a combination of factors that spooked financial and commodity markets.
“[This] sent equities and commodity prices gyrating from day to day. And [this] has resulted in volatile crude oil prices,” the DOF said.
Taking a cue from S&P Global Platts data, the DOF said that, from $82.577 per barrel on October 8 this year, Dubai crude dropped 2.9 percent to $80.188 per barrel on October 12. Similarly, Dubai crude oil futures for the next six months dropped below $80 per barrel.
“While Dubai oil price levels for the next six months using October 8 futures prices would have required suspension of the adjustment in excise tax for the next six months, the latest prices levels show otherwise,” the DOF added.
Based on the data released on October 12 provided by the DOF, Dubai crude oil futures is seen to hit $77.913 per barrel on November, $77.482 in December, $77.192 in January 2019, $76.961 in February 2019, $76.742 in March 2019 and $76.522 per barrel in April 2019.
This is lower compared to the projections made in October 8, with Dubai crude oil prices seen to hit $81.73 per barrel in November, $81.11 in December, $80.72 in January next year, $80.40 in February 2019, $80.11 in March and $79.78 per barrel in April 2019.
On Tuesday, the Development Budget Coordination Committee revised its macroeconomic assumptions for crude oil price in the medium term, with the price per barrel expected to average $70 to $75 this year, coming from the previous assumption of $55 to $70 per barrel.
For 2019, the price range is projected to increase to $75 to $85 per barrel coming from $50 to $65. In 2020, this range is projected to drop to $70 to $80 and as low as $65 to $75 for 2021 and 2022.
This implies a 39.1-percent rise in the midpoint price assumption in 2019, a 30.4-percent rise in 2020, and a 21.7-percent rise in 2021 and 2022.
Earlier, Finance Secretary Carlos G. Dominguez III said the Duterte administration’s economic managers have recommended that the President suspend the increase in oil excise tax in 2019 to help tame inflation.
No final decision has been made by the President regarding the issue to date. The finance chief said it is the President’s call on whether to suspend the increase in oil excise taxes under the Tax Reform for Acceleration and Inclusion (TRAIN) law for 2019, or let the law stay its course.
Under the TRAIN law, excise tax on oil products will be gradually increased starting this year to 2020. The law, however, contains a provision for temporarily suspending the increase scheduled on January 1, 2019, if the average price of Dubai crude based on Mean of Platts Singapore exceeds $80 per barrel for three months.
Furthermore, incremental excise tax increases were imposed on liquefied petroleum gas (LPG), diesel and gasoline products.
Tax on LPG, coming from a no-excise tax regime, would increase by P1 per liter this year, P2 next year and P3 in 2020. Diesel fuel would increase by P2.50 this year, P4.50 in 2019 and P6 in 2020. Regular and unleaded premium gasoline would have a tax increase of P7 this year, P9 in 2019 and P10 per liter in 2020. These increases come from an excise tax of P4.35 per liter in 2017.
S&P Global Platts is the leading independent provider of information, benchmark prices and analytics for the energy and commodities markets, and is a division of S&P Global.