THE Duterte administration was prodded on Monday to prepare for a looming “oil shock,” as a solon said global market crude prices may skyrocket to $100 per barrel (bbl) and pump prices were jacked up by local oil companies.
Noting that Filipinos are already “feeling the negative effects” of rapidly rising global oil prices, Sen. Sherwin T. Gatchalian said the Duterte administration should prepare ahead “in the event that crude prices reach the $100-per-barrel threshold in the global market.”
Gatchalian issued his statement weeks ahead of a meeting by the Organization of the Petroleum Exporting Countries (Opec), which controls 81.5 percent of the world’s proven crude-oil reserves.
“There will be an Opec meeting in early-June, and I ‘m sure that there will be pressure for them to ease production caps,” Rosemarie G. Edillon of the National Economic and Development Authority (Neda) told the BusinessMirror.
A rule of thumb goes that oil prices stabilize as Opec cuts production, with demand declining.
“There’s also the upcoming summer months in the northern hemisphere, which means an ease in demand,” added Edillon, Neda Undersecretary for Policy and Planning.
However, she said she “can’t say for sure [if oil prices will increase to $100 per bbl].” Likewise, Socioeconomic Planning Secretary Ernesto M. Pernia told the BusinessMirror in a text message that “Oil price movements are unpredictable.”
“Anything is possible depending on global events we have no control over,” Pernia added.
Pump prices
WHAT is predictable is the price of pump prices today (May 22) as oil firms implement hefty price hike.
Gasoline prices will go up by P1.60 ($0.031) per liter, diesel by P1.10 ($0.021) per liter and kerosene by P1 ($0.019) per liter. They cited movements in the world oil market as the main reason for the price adjustment, the highest since the start of the year.
PTT Philippines, Pilipinas Shell, Flying V and Total Philippines announced their respective price hikes. Other oil firms are expected to follow suit.
From January to May 2018, gasoline prices increased P8.07 ($0.15) per liter, while diesel is up P8.95 ($0.17) per liter.
The Department of Energy (DOE) said following these announcements of price hikes, it is closely monitoring crude prices in the world market.
“It’s burdensome. We need to conserve and use energy efficiency,” Energy Secretary Alfonso G. Cusi said. “We need to have more exploration like Alegria.”
Cusi was referring to the Alegria Oil Field in South Cebu, which is currently operated by China International Mining Petroleum Co. Ltd.
No worries
LOCAL economists, however, are allaying fears of an oil shock from a high-price regime despite the country’s status as a net oil importer.
Currently, Brent crude is around $80 per bbl. But economists believe there is not enough reason for this to increase to a $100.
University of Asia and the Pacific (UA&P) Vice Dean for Academic and Faculty Affairs Peter Lee U told the BusinessMirror there was only a 10-percent to 20-percent or less chance of oil prices reaching $100 per bbl.
“It [oil price increasing to $100 per barrel] can’t be ruled out completely if global economic recovery is strong,” U said. “Then there is also the tension in the Middle East, though there is always something going on in that part of the world every year.”
U added that if he were “to put a probability distribution on oil prices, my gut feel is about 10-percent to 20- percent chance or less that it would hit $100 given that we are already at $80 [for Brent].”
U said he is hoping that if oil prices breach the $80 per barrel mark, US oil players will increase their output, thereby increasing oil supply and reducing oil prices.
Goal 7
U’s colleague, UA&P School of Economics Dean Cid Terosa, agreed with U and said he expects there would soon be a larger market for alternative sources of energy, which will also help ease the pressure for oil prices to increase.
This augurs well with the Sustainable Development Goal targets stated under Goal 7 on ensuring access to affordable, reliable, sustainable and modern energy for all.
Under Goal 7, countries target that by 2030, there is universal access to affordable, reliable and modern energy services; a substantially higher share of renewable energy in the global energy mix; and the global rate of improvement in energy efficiency would have already doubled, among other targets.
Trade normalcy
Trade Secretary Ramon M. Lopez also said businessmen and exporters in the country need not worry about any further oil hikes, given that global trade will normalize once again with China and the US putting a halt to the escalation of their trade tiff in the past months.
Lopez said this will do more good to the stability of prices of raw materials on the international scale.
“World oil prices have been inching up in the past weeks and users have been adjusting. [We are] hoping that there would be lesser increases as oil supply increases,” he said in a text message. “The normalization of trade between the US and China is a far better development that would cushion concerns of further hike in oil price,” the trade chief added.
Still, Lopez admitted that petrol prices on the international level have been rising in the past weeks. In a previous interview with the BusinessMirror, he even attributed the rising prices of goods and services the movement of oil prices in the world market.
Recommendations
GATCHALIAN issued his statement apparently from the warning by Total SA CEO Patrick Pouyanne of the increase in oil prices.
Hence, the Senate Committee on Energy chairman said he is asking DOE officials to “accurately forecast the expected price of crude oil over the next six months.”
Gatchalian suggested that the DOE should also lead the preparation of strategies that would minimize the impact of surging prices on public-utility drivers and private consumers.
He cautioned, however, that the “DOE must ensure it provides accurate estimates, so government may be guided in crafting both immediate and long-term ways to insulate the country from shocks in the global oil market.”
At the same time, Gatchalian cited “unusually accelerated pricing track” of petroleum products, that he noted to be “disrupting public consumption.”
The senator recommends the Duterte government can also “explore reviving and expanding” the Pantawid Pasada or the Public Transport Assistance Program, or Ptap. First rolled out in 2011, the Ptap was an immediate mitigating program to shield the vulnerable sectors from the impact of oil price hikes.
He notes that when the program was implemented, legitimate public utility vehicle franchise-holders were given cash cards worth P1,050 to buy fuel from accredited gasoline stations.
Mechanism
LOCAL pump prices are mainly influenced by the crude prices in the world market and the peso-dollar exchange rate.
But for Cusi, higher taxes is the culprit. “There is a mechanism on the implementation of excise tax when oil price reaches a certain level,” he said. Cusi was referring to the suspension of the imposition of excise tax if and when crude prices reached $80/bbl in three consecutive months.
He is also urging more investors in the oil and gas industry to develop the more indigenous energy resources in the country.
“I asked our OIMB [oil industry management bureau] to call for a meeting with the oil companies to discuss the surging oil price and what measures we can adopt to lessen its impact,” Cusi said.
He explained the DOE is studying options line suspension of excise tax on fuel, increase in existing fuel discount to public utilities (land), expedite price unbundling energy conservation and efficiency, development of indigenous sources vouchers for pub in coordination with the Department of Transportation, among others.
With Lenie Lectura and Elijah Felice E. Rosales