Global oil supply swung from glut to low, and prices are once again breaching the roof, bloating inflation in the Philippines and sending basic goods unaffordable to many.
THE soaring prices of oil and its derivative petroleum products are an unwelcome result of the COVID-19 pandemic. It is something anticipated, yet the Philippines being an oil-importing nation, can only parry the economic blows as they come.
While this oil crisis is not as serious as those faced by the nation under President Ferdinand Marcos in 1973 and 1979, this present crisis shares the same problems, with the added details that PH population now is a lot bigger than 40 years ago.
We say there is an oil crisis when there is a sudden rise in the price of oil that is often accompanied by less supply. In 1973, the Arab members of the Organization of Petroleum Exporting Countries (OPEC) decided to quadruple the price of oil to almost $12 a barrel. They also implemented an embargo against the United States, Japan, and western Europe, further weaponizing this commodity, in retaliation for the west's support of Israel against Egypt and Syria during the Yom Kippur War.
In 1979, another such crisis was brought about by the Iranian Revolution, during which the social unrest in that country wrecked the oil industry resulting in little output and surging prices.
The world has learned important lessons from these oil crises, and ramped up research and development on more efficient methods of production. Countries ventured into renewable sources of energy such as solar, water, wind, volcanic springs, dendro-thermal, natural gas, coal, steam and others although fossil fuel remains the main source of energy.
Oil inventories like other commodities swing from undersupply to oversupply. The onset of COVID-19 pandemic in February 2020 saw whole industries grind to a halt, economies at a stand still, and thousands of oil tankers at sea not knowing where to unload their oil. Prices slumped to record low.
We quote this report: "The impact of the COVID-19 pandemic hammered the oil industry in 2020, forcing U.S. oil prices to go negative for the first time on record. In a matter of hours on April 20, the May 2020 contract futures price for West Text Intermediate (WTI) plummeted from $18 a barrel to around -$37 a barrel.
"Oil producers were faced with a glut of crude oil that left them scrambling to find space to store the oversupply. Brent crude oil prices also tumbled, closing at $9.12 a barrel on April 21, a far cry from the $70 a barrel crude oil fetched at the beginning of the year."
Fast-forward to the present, November, 2021: "Brent and Dubai oil prices have been rising fast. From $42.15 and $42.30 per barrel averages, respectively, in 2020, they climbed to $67.25 and $69.01 per barrel averages for nearly 10 months this year. These gains were huge, nearly 60% for Brent and 63% for Dubai. As of Oct. 25, Brent and Dubai have risen to $82.87 and $85.36 per barrel, respectively."
The West's sudden rush to achieve economic recovery after notching a considerable victory over the coronavirus led to the great bounce in the prices of crude oil.
Effect on PH
High oil prices will trigger corresponding increases in the prices of basic commodities because gasoline, diesel, kerosene, LPG and electricity are all items that directly go into their production and distribution.The effect is a higher inflation rate.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said on Friday that inflation in October likely exceeded the central bank’s annual target largely due to domestic oil price pressures.
Inflation will likely settle within the 4.5%-5.3% range, breaching the 2-4% BSP target for the year, told reporters. Inflation went up 2.5% in October last year. It was at 4.8% in September 2021, a bit lower than August's 4.9 percent.
Last week, pump prices of gasoline rose by P1.15, diesel by P0.45, and kerosene by P0.55 per liter, reflecting the continued surge in global oil prices.Brent crude was steady at $82.36 a barrel. Meralco power rates went up by P0.0283 to P9.1374 per kilowatt-hour (kWh) in October.
Inflationary pressure
Diokno said higher Meralco electricity rates, increased prices of fish and fruits, and the depreciation of the peso added to the upward inflationary pressure.
“These could be partially offset by the continued decline in rice and meat prices, reflecting continued arrival of pork imports,” he said.
He must be thinking of the easing of minimum access volume quota for pork imports even as tariff rates were temporarily lowered to address low pork supplies and rising prices due to the African Swine Fever outbreak.
Suspend the excise tax
Even as the jeepney and tricycle drivers and their associations and the organized fishermen were pleading the government for subsidies and/or full passenger capacity, the Duterte administration showed it is not insensitive to the situation of workers and the poor.
Energy Secretary Al Cusi touted the possibility of suspending the excise tax on fuel products, saying this could reduce pump prices by P8 to P10 per liter. This will however need congressional action since the Bayanihan law covered only the years 2018 to 2020.
Since we now have the election campaign season, it is easy for presidential candidates to take on the populist stance and also advocate for the scrapping of the excise tax on petroleum products. Manila Mayor Isko Moreno was ahead of the pack of advocates, with Vice President Leni Robredo saying it has been her position to put the excise tax on oil products on the back-burner since way back.
Both candidates, however, were asked how such a move would affect other items in the budget of the national government, especially those of key departments and their programs.
It is welcome news that the government plans to release P1 billion in cash grants for public utility vehicle drivers in response to soaring pump prices.
The funds will be distributed under the Pantawid Pasada Program of the Land Transportation Franchising and Regulatory Board and drivers' Land Bank cash cards will be used.
Meanwhile, the Department of Agriculture and the Department of Energy are in talks about the possible implementation of a gasoline discount mechanism in the fisheries sector.
The first group of fishermen to benefit are 30,000 municipal fisherfolk and 138 commercial fishing vessel operators based within the West Philippine Sea.
This recurring oil crisis will still be with us in the next few months and it is best for the government to act with dispatch because whatever action it would take will be temporary at best.(with additional reports by Diego C. Cagahastian)