After the hefty increase of P5.85/L in diesel, P3.60/L of gasoline and P4.10/L in kerosene hike today (March 8, 2022), a much bigger hike of P10/L looms next week because of skyrocketing world oil trading. Today, pump prices are hovering over P60-P70 per liter while some gas stations in Boracay and Visayas have been selling at P80/liter. And we are not even talking here of its deleterious effects on the prices of our basic goods. Now the question: can our economy and people afford a projected P100/liter of gasoline or diesel in the next months?
This looming World Oil Crisis 2022 is caused by the Western nations’ attempt to implement an international embargo against Russian oil and energy products because of its invasion of Ukraine. Russia is the third largest oil producer in the world and if this conflict continues, global economy suffers. Another cause is the low production by OPEC, and the shutting down of Libyan oil fields by armed men.
Experts say Dubai crude, from which our oil prices are based, are now trading from $124 to $134 per barrel. This is already $40 to $50 more than the government budget benchmark of $80/barrel. For your information, international oil traders are already buying Brent futures at $200 a barrel for May and June. Some are saying Brent crude could end the year with $185 a barrel should Russian oil supplies continue to be disrupted.
Presently, our country’s consumption is about 60 million liters a day with a 40-day minimum inventory which is just enough at this point, but what happens if the supply becomes scarce and richer countries would again corner global production to fill their own petroleum reserves?
I remember the world’s oil shock in 1973 when Arab members of OPEC imposed an oil embargo on the United States in retaliation to its support for Israel in the Arab-Israeli war. Oil prices quadrupled from $2.90/barrel to $11.90/barrel in January 1974 and supplies were severely disrupted. The Marcos administration then implemented fuel rationing in six months from October 1973 to March 1974, a harrowing experience that drastically altered economic policies not only here but worldwide.
Today, most presidential candidates are clamoring for the immediate removal of government taxes on petroleum products to lower both pump prices and inflation. This can give temporary relief, but today is a much deeper and most difficult situation. One that will test the survival of our economy and more importantly, public finance.
First, we are still reeling from the financial impact of the COVID-19 pandemic. Second, our economic recovery efforts have barely started since Alert Level 1. And now, we are confronted with this bursting world oil crisis and subsequently, the expected runaway food prices.
These situations will be handled in four months by the outgoing administration but in July, the newly elected president and his cabinet will assume office. I have no doubt that President Duterte will hurdle his part, with his track record of carefully steering us from the pandemic, like securing COVID-19 supplies in a global shortage last year. I will not be surprised if the President signs an oil supply agreement with Saudi Arabia and OPEC before he steps down, and hopefully at a fair price.
But the question lingers, will the chosen presidential candidate be able to solve these problems all at the same time—pandemic effect, economic recovery, world oil crisis and spiralling consumer costs? Does this candidate possess the economic knowhow, the geopolitical understanding, and the nerves of steel to solve these situations?
Please think hard about our choice. Better yet, watch carefully how they explain their respective plan of actions. We need to see concrete or even painful but correct answers, and definitely a big rejection to populist and political cliches.