FINANCE Secretary Benjamin E. Diokno said on Tuesday it is too early to assess the impact of the surprise output cut by the world’s largest oil exporting countries on Philippine inflation.
“I think the OPEC countries are kind of anticipating that oil prices, if they do not do anything, will go lower than what it is right now… I assume this was done to anticipate that reduction… It’s also because of some forecasts for a global slowdown. So the demand for oil can slow down while there’s a cutback,” he said during a press briefing on Tuesday.
The Organization of the Petroleum Exporting Countries and their allies including Russia (OPEC+)on Sunday announced further output targets cuts of around 1.16 million barrels per day (bpd) from May through the rest of the year.
Analysts warned these OPEC+ production cuts may drive global oil prices to above $100 per barrel this year.
“So we don’t know yet the impact on Philippine inflation… As far as I know, (based on) the NEDA (National Economic and Development Authority) and BSP (Bangko Sentral ng Pilipinas (BSP) forecasts, the threshold for oil is $90 per barrel,” Mr. Diokno said.
The Finance chief made the statement ahead of the release of March inflation today (April 5). The BSP earlier said inflation likely eased to between 7.4-8.2% in March, from 8.6% in February, although this is still above the 2-4% target range.
The BSP projects average inflation to settle above the 2-4% target range at 6% this year.
Mr. Diokno said as an oil-importing country, the Philippine can only manage the demand for oil.
“There are many moves to conserve the use of energy. Like we’re shifting now to EVs (electric vehicles). That’s what I mean by there’s many moving parts. It’s hard to forecast what will happen next,” he added.
Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc. said that the global oil output cut is an “inflation risk” moving forward.
“The impact of this event will not be seen in March’s inflation print. It will be felt, however, in the April round of CPI (consumer price index) print release. Hopefully, this will just be a one-off since prices seemed to have steadied already after the OPEC+’s announcement a few days ago,” Mr. Asuncion said in a Viber message.
He said the OPEC+’s move is not likely to lift crude oil prices to above $100 per barrel, but should still be closely monitored.
ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the OPEC+ cut could also have an impact on transport and utility prices in the Philippines.
“We had expected base effects for energy prices to help bring down headline and core inflation in the Philippines. For now, this will remain our base case however the extent to which transport and utility prices will slip may need to be adjusted,” Mr. Mapa said in an e-mail.
“All in all, we will still likely see inflation moderate but the phenomenon of prices remaining sticky will be more pronounced due to the supply side shock,” he added.
PUMP PRICE HIKES?At the same time, the Department of Energy (DoE) downplayed the impact of OPEC+ production cuts, saying it won’t necessarily mean a steady rise in pump prices.
“(The OPEC+) oil production cut appears to affect around 3-4% of the global supply. However, this does not categorically translate to a sustained increase in prices but any possible increase in price should be monitored in the next two weeks,” Rino E. Abad, director of the Oil Industry Management Bureau at the DoE, said in a message to BusinessWorld.
However, Mr. Abad said pump prices remain volatile, which means “a mix of increase or decrease by weekly basis could ultimately be expected.”
Fuel retailers on Tuesday increased gasoline prices by P1.40 per liter, diesel by P0.50 per liter and kerosene by P0.20 per liter. This brought the year-to-date net increase for gasoline at P6.05 per liter; net decrease for diesel at P3.65 per liter; and net decrease for kerosene at P5.30 per liter.
Senator Sherwin T. Gatchalian, vice-chairperson of the Senate Committee on Energy, called on the DoE to prepare measures that would cushion the impact of the oil production cuts on the economy, as this would intensify inflationary pressures.
“Rising oil prices could mean inflation remains higher for longer, which will add more pressure to several industries relying heavily on industrial oil,” Gerry C. Arances, executive director of Center for Energy, Ecology, and Development (CEED) said in a message to BusinessWorld.
Mr. Arances said higher oil prices would also affect consumers in off-grid areas. The National Power Corp. (Napocor) through its Small Power Utilities Group (SPUG), serves remote areas not connected to the grid, many of which are reliant on generator power.
“It will also disproportionately affect consumers in SPUG who rely on diesel-based electricity, and are already reeling from reduced electricity services due to the high cost of diesel, even without this announcement from OPEC,” he said. — Ashley Erika O. Jose withinputs from Aaron Michael C. Sy