By Sheldeen Joy Talavera and Aubrey Rose A. Inosante, Reporters
GLOBAL OIL PRICES are expected to soar amid a widening conflict in the Middle East after the US attacked Iranian nuclear sites.
“World oil prices could rise further because of the new development. The potential increase in premium and freight, which are projected to rise because of the expanded scope of hostilities, could be factored in the expected movement on domestic prices next week,” Jetti Petroleum, Inc. President Leo P. Bellas said in a Viber message.
The impact of the potential increase in freight would be determined “as soon as trading commences early (Monday) morning,” Mr. Bellas said.
As of June 21, diesel is projected to go up by P4.90 to P5.10 per liter; and gasoline by P3.20 to P3.40 per liter, an industry player said.
If realized, this would be the sixth consecutive week of price hike for gasoline and four straight weeks for diesel.
The US launched airstrikes on three nuclear sites in Iran, US President Donald J. Trump said late on Saturday, saying these facilities “have been completely and totally obliterated,” Reuters reported. (Related story “Strikes on Iran’s nuclear sites mark Trump’s riskiest foreign policy gamble”).
Mr. Bellas said that industry players are set to meet with the Department of Energy (DoE) on Monday to look for ways to cushion the impact of the looming big-time price hike.
He said that the meeting aims “to discuss the implementation of the price increase (this week) on staggered basis, promos and discount offerings of stations to help mitigate the impact of the price increase, among other things.”
Before the US attack on Saturday, analysts at Oxford Economics modeled three scenarios, including a de-escalation of the conflict, a complete shutdown in Iranian oil production and a closure of the Strait of Hormuz, “each with increasingly large impacts on global oil prices,” Reuters reported.
In the most severe case, global oil prices jump to around $130 per barrel, driving US inflation near 6% by the end of this year, Oxford said in the note.
“Although the price shock inevitably dampens consumer spending because of the hit to real incomes, the scale of the rise in inflation and concerns about the potential for second-round inflation effects likely ruin any chance of rate cuts in the US this year,” Oxford said in the note, which was published before the US strikes.
In comments after the announcement on Saturday, Jamie Cox, managing partner at Harris Financial Group, agreed oil prices would likely spike on the initial news. But Mr. Cox said he expected prices to likely level in a few days as the attacks could lead Iran to seek a peace deal with Israel and the United States.
Rodela I. Romero, assistant director of Oil Industry Management Bureau of the Department of Energy, said on Friday that there is a “major oil price shock looming as the Israel-Iran conflict threatens critical global shipping passage.”
The DoE earlier said that the government is prepared to roll out fuel subsidies to transport operators and farmers to contain the broader impact of high fuel costs on the prices of basic goods and services.
Fuel companies in the Philippines are mandated to maintain at least a 30-day fuel inventory to help stabilize local supply. If global crude prices exceed the $80 per barrel threshold, fuel subsidies for public transport drivers and fisherfolk will be automatically triggered.
President Ferdinand R. Marcos, Jr. said last week that the government may extend fuel subsidies to sectors severely affected to a spike in oil prices.
“Fuel subsidies are the correct policy response because allowing an increase in transport fares will hit the commuting public hard and strengthen inflationary pressures. Moreover, it’s possible that these subsidies may only be temporary if the Middle East crisis passes,” Calixto V. Chikiamco, president at Manila-based Foundation for Economic Freedom, said in a Viber message.
IMPACT ON INFLATIONAs oil prices rise due to the developments in the Middle East, analysts warned this could stoke inflation and dampen consumer confidence, as well as hurt remittances.
“Its economic impacts will include higher inflation risks, as the Middle East where these conflicts are happening is the main source of our country’s oil,” Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., said in a Viber message.
“In addition, a lot of OFWs (overseas Filipino workers) are working in this region which may also negatively impact remittance inflows and of course their overall safety,” he said.
BSP Governor Eli M. Remolona, Jr. earlier warned that rising global oil prices and the weakening peso could bring inflation to 5%, breaching the 2-4% target range.
“We have a bad scenario, if I may call it that, in which our inflation rate could exceed 5%. But we hope it doesn’t happen and we’re carefully watching that,” Mr. Remolona said in an interview with Cathy Yang on One News TV on June 22.
Mr. Remolona also said the 5% inflation scenario would involve Dubai crude reaching $100 per barrel and the peso sharply depreciating.
“Our good scenario, or I would say our central scenario says, inflation will go up to around 3.4%,” he said.
Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co. said the Middle East conflict has a minimal impact on remittances for now.
He warned the conflict may escalate further and spread to other Middle East countries where there are significant numbers of OFWs such as Saudi Arabia, the United Arab Emirates, and Qatar.
Data from the Bangko Sentral ng Pilipinas said remittances from the Middle East region stood at $1.97 billion in the first quarter, up 6.51% from the same period last year.
Juan Paolo E. Colet, managing director at China Bank Capital Corp., said that oil companies need to manage their procurement, inventory, and hedging strategies well to mitigate the impact of potential price spikes and supply disruptions.
Mr. Colet said that while the government can offer subsidies to public transportation providers to cushion the impact of higher oil prices, this can only be a short-term solution.
“Our policymakers must look beyond the current conflict in the Middle East to make our country resilient to oil shocks. That includes investing in mass transit systems, fast-tracking renewable energy and battery energy storage projects, and promoting the shift to EVs (electric vehicles),” he said in a Viber message. — with Reuters
