May swing to $120 as Ukraine crisis deepens; PH recovery in peril
Fears of a possible full-scale Russian invasion of Ukraine have pushed the world price of oil close to $100 a barrel, a development that could slow down the country’s economic recovery.
Arnel Ty of the LPG Marketers Association warned that if Russia invades Ukraine and oil prices continue to spike, this could lead to a serious global shortage of the commodity.
Ty said the impact of the Ukraine crisis is already being felt as oil prices soar. Other analysts raised fears that world oil prices could go as high as $120 per barrel.
“The world oil market price continues to increase, and that affects our domestic oil retail price,” Ty said.
“European countries are heavily dependent on Russian oil. If Europe shifts their oil requirements to the Middle East, this would create a shortage,” he said, adding that this applied to shipping vessels and the fuel itself.
The Department of Energy (DOE), however, said it believes there is enough oil supply to meet the country’s demand.
“As far as prices are concerned, they’re going up, but as far as supply is concerned, it’s there,” said Energy Undersecretary Felix William Fuentebella. “So it’s more of how we go about our business where we don’t have to spend much for additional costs. That’s where the energy efficiency campaign comes in again.”
“Prices will go up but what the Downstream Oil Industry Bureau is looking at is the supply is there. So you don’t have to worry too much because of that,” Fuentebella said.
While high prices are a concern for motorists, he said the phenomenon would “fizzle out.”
Rino Abad, director of the DOE Oil Industry Management Bureau cited projections by Platts that the tight supply in the global market may normalize by May or June.
Abad said the government’s ongoing programs to help the affected sectors such as the Pantawid Pasada Program, fuel discounts to the agriculture sector and private sector initiatives to provide fuel discounts would ease the impact of high prices.
PetroEnergy Resources Corp. vice president Francisco Delfin Jr. agreed with Fuentebella that the high oil prices are more of a concern to consumers as they affect the prices of goods and transpiration.
“The lesson there is that things will not always stay that high. There will always be developments that will sort of temper this down. How long that will take, nobody knows,” he said.
Meanwhile, the Philippine Rural Electric Cooperatives Association (Philreca) expressed concern over the high oil prices and their impact on power rates.
Philreca also said the current situation magnifies the need to push for energy security.
According to reports, international prices of oil are at a seven-year high at the moment.
“This shows that there is really a need for us to work on the country’s energy security and independence,” Janeene D. Colingan, Philreca executive director, said.
“For the industry, one of the solutions to this problem is really to intensify further and support the renewable energy industry.
Unfortunately, more than 10 years after the enactment of the Renewable Energy Act of 2008, it seems like we are still far away from the golden age of renewable energy,” she said.
She said DOE should support legislative proposals that will help mitigate the impact of high oil prices on consumers, for example, removal of multiple and unnecessary taxes on the energy supply chain.
She said while this may reduce government tax collections in the short term, increasing the purchasing power of people would eventually result in higher consumption taxes.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the immediate impact from the Ukraine crisis has been a spike in global oil prices. High inflation, he added, could slow down the country’s economic recovery.
Wire reports on Wednesday said the futures for Brent crude, the benchmark in international energy markets, added $1.45 a barrel, or 1.5 percent, to settle at $96.84 and earlier climbed to $99.50, their highest level since 2014.
Also in Europe, natural-gas prices rose 10 percent to €80, equivalent to $91.65, per megawatt-hour after Germany halted the Nord Stream 2 pipeline in response to Russian aggression against Ukraine.
Economists earlier this year said the Philippines was on the path to recovery following a stronger-than-expected gross domestic product expansion of 5.6 percent in 2021, a significant turnaround from the 9.6-percent contraction a year ago due to the devastating impact of the COVID-19 pandemic.
Meanwhile, inflation in January 2022 continued its downward trend and eased to a 15-month low of 3 percent from 3.2 percent in December 2021.
But the Monetary Board of the Bangko Sentral ng Pilipinas last week raised the inflation forecast this year to 3.7 percent from 3.4 percent made during last December’s meeting, taking into account, among other reasons, higher oil prices. The forecast for 2023 was also slightly raised to 3.3 percent from 3.2 percent previously.
Ricafort said the Philippine financial markets were indirectly affected recently by geopolitical risks involving Ukraine, not only through higher oil prices, but also on US global bond yields.
Ricafort also said the peso weakened recently against the US dollar—among the weakest in a month—partly due to higher global oil prices that led to higher oil imports, on top of more hawkish Fed signals recently.
However, he said the peso exchange rate has been relatively stable recently. On Wednesday, the peso closed at 51.1 to a dollar, 44 centavos stronger than the 51.45 a day ago, the strongest since the 51.05 on Feb. 3, 2022.
Meanwhile, global debt watcher Moody’s Investors Service said
Wednesday that since its rated issuers in the Asia-Pacific region—including the Philippines—have limited direct exposure to Russian or Ukrainian entities, there would not be any immediate or direct ratings impact from the situation in Ukraine.
“Nonetheless, issuers in APAC may not be immune to second round effects of a conflict. Among the possible transmission channels are commodities prices, trade effects and financial market disruption,” Moody’s said in a report.
Moody’s said the global price of oil and liquified natural gas (LNG) is likely to rise sharply in the event of a conflict, which will be positive for the relatively few exporters in the Asia Pacific region and negative for the substantially greater number of net energy importers.
However, it said a mitigating factor is that several Asian economies have long-term supply contracts in place for LNG which will limit the impact of fluctuations in the spot price.
The Philippines enjoys an investment grade rating of “Baa2” from Moody’s. Fitch Ratings and S&P Global Rating also gave the country investment grade ratings.
The Department of Trade and Industry (DTI), meanwhile, said in terms of trade, the Philippines would not be affected significantly, as its trade volume with Russia and Ukraine remains small.
Trade Secretary Ramon Lopez said, however, that the Philippines would be affected by the disruption in the prices and supply of oil and key commodities like wheat, iron ore, and the high degree of uncertainties that could affect global recovery efforts.
Bilateral trade with Ukraine was estimated at around $200 million while it ranked as the 40th trading partner of the Philippines.
Lopez said the DTI has initiated a study on how deeply the Ukrainian crisis would affect the Philippines’ economic recovery.
The impact on manufacturing will be a 3.5 percent hike in overall production costs, based on the initial computed estimates of the DTI.
“Our formula shows a 5 to 7 percent impact on manufacturing with the 70 percent increase in crude oil prices, so far. This is about a 3.5 percent impact on production costs, notwithstanding the impact on other factors of production,” he said.
This, however, could still drive prices up for goods and services.