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Friday, March 29, 2024

The Opec effect

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News of oil prices hitting a record 16-month high—with crude rising to $55+ a barrel—could trigger another jump in oil prices. The decision by the Organization of Petroleum Exporting Countries to slash production by 1.2 billion barrels per day starting January is making our buddies with gas-guzzling vehicles a bit nervous. For sure, the law of supply and demand could rear its ugly head, although Department of Energy officials say there are also other factors that could trigger an increase.

We can already imagine the friendly neighborhood meat dealers complaining to their “suki” housewives about slow sales because they are also forced to hike up prices, anticipating calls for higher transportation rates from jeepney and tricycle drivers. The latter in fact have the temerity to ask for additional fare even without official approval from the Transportation Department. And if a passenger threatens to report them, they will just smirk and say, “go right ahead” knowing that the poor passenger will not follow through with the threat since it would waste a lot of his time.

Those who are planning to travel for the holiday season (and even beyond) should make their flight reservations now before another surge in prices happens. Reports say the production cut by Opec could result in airlines cutting down some perks for passengers. For instance, the complimentary drinks in premium airlines will no longer be offered and even inflight entertainment may be withdrawn (or still be offered with very limited choices though).

Premier, full-service airlines may just copy the example of budget carriers and start charging extra for food, drinks, checked-in luggage and other so-called ancillary services that passengers have come to expect—and take for granted especially from legacy carriers. (We wonder if the time will come when “bring your own baon” will become de rigueur for long-hail flights.) After all, aviation fuel is one of the biggest expenses made by airlines, and this year so far, the increase has reached around 30 percent.

Industry insiders are also saying that the five-year streak of profitability recorded by airlines would suffer a decline. There is also a great possibility that flights may be reduced to destinations that are not very profitable or lack so-called “premium passengers.” On the other hand, aircraft makers such as Boeing and Airbus may just profit from the situation because airlines will see the profitability of acquiring 787 Dreamliners or A350s because these twin-engine models are more fuel-efficient than four-engine aircraft like the Boeing 747 or the Airbus A380.

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Certainly, these developments could impact tourism, an industry that is exposed to volatility in oil prices. But then again, a lot of other industries—if not all—are always affected whenever oil prices go on a slump or zoom up. As an old article published at resilience.org pointed out, the volatile nature of oil prices could shake the foundation of this transport-oriented global economy, and send ripple effects across many sectors.

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