No end in fuel cost shock amid Ukraine crisis
Pump prices will go up for the ninth consecutive week, with gasoline expected to hit P80 per liter, and no end in sight to the inflationary spiral triggered by Russia’s invasion of Ukraine, which has already driven world oil prices north of $100 a barrel.
Industry sources said the projected increase of 80 centavos per liter for gasoline next week is based on Thursday’s world price movement and could still increase further. Friday’s trading could still raise the estimate, one source said.
Based on data from the Department of Energy, gasoline (95 RON) is now at a high of P75 per liter and diesel at P66 per liter in the National Capital Region.
On Feb. 22, the oil companies raised gasoline prices by P0.80 per liter, diesel by P0.65 per liter, and kerosene by P0.45 per liter. These resulted in year-to-date net increases of P8.75 per liter for gasoline, P10.85 per liter for diesel, and P9.55 per liter for kerosene.
The Department of Energy (DOE) has yet to verify reports that some gas stations are charging over P100 per liter, but industry sources said pump prices tend to be higher in small islands because of abusive dealers.
“In some islands like Tablas, Polilio or even Boracay it’s happening. There is abuse because there is not much choice. Consumers suffer because there is no supply,” one industry source said, requesting anonymity.
The leaders of the World Bank and IMF signaled Thursday they were ready to help Ukraine while warning that Russia’s invasion will have repercussions for the global economic recovery.
IMF Managing Director Kristalina Georgieva said she was “deeply concerned” about the fighting’s impact on the people of Ukraine and cautioned in a tweet that the conflict “adds significant economic risk for the region and the world.”
The International Monetary Fund continues to assess the economic impact but will “stand ready to support our members as needed,” she said.
The Washington-based crisis lender is in the process of deploying $2.2 billion in assistance to Ukraine under a loan program set to end in June.
Georgieva has said the fund could provide aid to other countries affected by any spillover effects of the conflict, if needed.
World Bank President David Malpass said in a statement the Washington-based development lender “is horrified by the shocking violence and loss of life,” and warned that “the devastating developments in Ukraine will have far-reaching economic and social impacts.”
“We stand ready to provide immediate support to Ukraine and are preparing options for such support, including fast-disbursing financing,” Malpass said, adding that the World Bank and IMF were coordinating to monitor the impact of the Russian aggression.
Meanwhile, energy players said the Russian attack on Ukraine puts the spotlight on the country’s dependence on imported fuels.
“There is no overnight solution to reduce oil prices in our country. The only way to do that is to reduce our dependence on imported oil by exploring more domestic sources of oil and gas and transition to electric vehicles in the years to come,” Senator Sherwin Gatchalian, chairman of the Senate committee on energy said.
AC Energy Corp. (ACEN) president and chief executive officer Eric Francia said in a forum the volatilities and uncertainties caused by Russia’s war in Ukraine “emphasizes the need for energy independence and security especially for a country like the Philippines.”
“It raises the question of more investments on indigenous sources, be it oil and gas resources… or renewable energy,” he said.
Gatchalian said oil prices go up because consumption of oil increases as economies open because of the rapid decline of COVID-19 cases.
He said the higher price trend is aggravated by the uncertainty created by the invasion by Russia, which is a major oil and gas supplier in the world market.
“Even if Russia is not a supplier of oil and gas to the Philippines, the global supply disruptions will cause oil prices to escalate in the short to medium term,” Gatchalian said.
Gatchalian called on the government to implement the Pantawid Pasada (PP) subsidy for public utility drivers by using e-wallets to deliver cash instantaneously.
He also urged the government to extend PP to food transporters by using e-wallets as well.
Gatchalian said DOE should formulate contingency plans in case of supply disruptions and monitor global oil prices closely, which may escalate in months to come due to uncertainty.
Transport groups, meanwhile, called for fare increases as their fuel costs rise.
In the House, Albay Rep. Joey Sarte Salceda proposed a five-point plan to respond to the threat of rising oil prices amid the ongoing Russian invasion of Ukraine.
“Russia accounts for 12 percent of global oil supply, on top of 24 percent of natural gas supply, whose absence will also have substitution effects on oil prices,” Salceda said.
“Although it is not very likely that Russian oil exports will be severely restrained, still expect some near-term oil price hikes at the very least,” Salceda added.
He outlined his five-point plan.
“First, we need to draw a line in the sand in terms of the fuel excise tax. If crude oil prices are still at US$100 by March 15, President Duterte should call for a special session to consider options for the reduction or suspension of the fuel excise taxes under the TRAIN Law.”
“The most fiscally sensible option is, at the very least, to reduce the oil excise tax at a level that is equivalent to what we will gain in VAT to prevent the government from going further into already elevated deficit levels,” Salceda said.
“Reducing fuel prices at a level equivalent to VAT gains would already result in a P2.06 reduction in gasoline prices, P2.34 in diesel prices, and P2.89 in kerosene prices,” Salceda said.
“Second, the government should open all public transportation options to full capacity immediately. This will help lower transport costs for those who are forced to take private cars due to the lack of available alternatives after the COVID-19 restrictions. It will also lower our consumption of fuel,” Salceda added.
“Third, I recommend that President Duterte immediately issue an executive order mandating the Department of Energy, the Department of Trade and Industry, and the Philippine Competition Commission to strictly monitor energy companies to prevent uncompetitive practices and hoarding in the sector.”
“To ensure that no maintenance issues will exacerbate the likely impact of oil price hikes on electricity costs, I also recommend that the EO contains a mandate for the DOE to require inspections and maintenance checks on all generation plants. In July 2021, maintenance issues worsened the effect of oil prices on electricity prices,” the House tax panel chief added.
“Fourth, I recommend the tapping of the Contingency Fund (around P4.5 billion of which can be used for subsidies in the 2022 budget), the President’s Socio-Civic Fund (around P3 billion remitted by PAGCOR in 2021), on top of the proposed P1 billion fuel voucher subsidy promised by the Development Budget Coordinating Committee,” Salceda said.
“Fifth, I propose that the NDRRMC conditionally allow the declaration of a state of calamity for economic reasons by local governments that are especially dependent on fuel (such as fishing communities) when oil prices become unmanageable.”
“I also recommend an accompanying executive order which sets the guidelines for the use of calamity funds for fuel vouchers and other mitigating measures for when that criteria is invoked.”
“This will allow LGUs to make use of calamity funds and to impose price freezes on basic commodities should there be a real threat of an uncontrolled local increase in prices,” Salceda said.
The snowballing conflict already has sent oil prices soaring to their highest level since 2014, adding to worrying global inflation
pressures.
In January, the IMF cut its world GDP forecast for 2022 to 4.4 percent, half a point lower than its previous estimate in October, due to “impediments” caused by the latest coronavirus outbreak.
US President Joe Biden on Thursday announced severe new sanctions on Moscow, including freezing assets of major banks and cutting off high tech exports to the country, in coordination with Europe.
However, analysts note that Moscow has prepared for years to withstand such sanctions, building up a war chest of cash and gold, and has very low debt.
“It’s not a coincidence. I think it’s very much part of what we call the fortress Russia strategy,” said Elina Ribakova of the Institute of International Finance, a global banking association.
“It was a very deliberate shift in macroeconomic policy to accommodate geopolitical ambitions,” she said. “They have a piggy bank that can protect them.”
The conflict could also change the Federal Reserve’s calculus when it comes to fighting inflation in the United States, a central bank official said Thursday.
The Fed next month is expected to hike rates for the first time since COVID-19 broke out, but it might have to move more aggressively if the Ukraine crisis disrupts commodities and raises prices.
Loretta Mester, president of the Cleveland Federal Reserve Bank, said the US central bank will monitor the conflict’s impact on the world’s largest economy.
“The implications of the unfolding situation in Ukraine for the medium-run economic outlook in the US will also be a consideration in determining the appropriate pace at which to remove accommodation,” she said in a speech. With AFP