Crisis triggers peso fall, oil topping $100, fear of wheat shortage, flour price hikes
The Philippines will have to “brace for impact” as the Russian invasion of Ukraine pushes oil prices north of $100 a barrel, and as a scarcity of wheat, much of which comes from the two countries and other parts of Europe drives up the cost of flour.
Worries over the war in Europe also caused the peso to weaken vis-a-vis the US dollar.
Rino Abad, director of the Department of Energy’s Oil Industry Management Bureau said oil prices were already high, given the insufficient daily production and the uncertainty over the Ukrainian crisis.
“Last week the reports from Bloomberg and CNBC pointed to a projected uptick in Brent crude price from US$ 90 to US$120 in the coming days,” Abad said. “If this projected increase actually happens then its impact will be to increase our domestic pump price.”
Oil company officials could offer no estimate as yet on the impact on local pump prices next week but said procurement of oil already required higher capital.
“The Philippines will have to brace for impact in the next few days as soon as we see more clarity on the actions of various parties involved in the Ukraine crisis,” said Terry Ridon, a convenor of Infrawatch Ph, an infrastructure think tank.
Ridon said the first order on the Ukraine crisis is for the international community to call for a de-escalation of the ongoing conflict and revert to diplomatic processes.
“The crisis impacts not only oil prices but the stability of the international economy. Unless the international community ensures an immediate de-escalation to the crisis, the outlook for the international economy will be grim: stock indexes and crypto prices have fallen in the past few days with no signs of abating,” Ridon said.
Energy Undersecretary Gerardo Erguiza Jr. said the government could not act on high pump prices because the Oil Deregulation Law of 1998 mandates that these be based on world market prices.
He said Congress could amend the law to allow government intervention to address the oil price spikes.
But Victorio Dimagiba, president of Laban Konsyumer Inc. said the government should get its act together and provide assistance to consumers in the wake of the oil price crunch.
“Government should get out of hiding in their air-conditioned rooms and give out financial assistance to consumers which are long overdue,” he said.
Meanwhile, flour prices are also expected to rise as a large part of the world’s wheat supply comes from Russia, Ukraine, and other parts of Europe.
Presidential adviser for entrepreneurship Joey Concepcion said a supply chain disruption could develop if the war escalates.
The peso, meanwhile, depreciated by 33 centavos against the greenback on Thursday, weighed down by the Russian attacks on military installations in Ukraine that caused oil prices breaching the $100 per barrel level.
The local currency closed at 51.34, down from 51.1 on Wednesday. Total volume traded reached $1.16 billion, up from $934 million previously.
The weaker peso was triggered by the Russian attacks that sent the benchmark Brent crude oil prices above US$100 a barrel, said Michael Ricafort, chief economist at Rizal Commercial Banking Corp.
He said the peso’s exchange rate against the US dollar on Thursday was among the weakest for the local unit in about four weeks, after US President Biden warned about severe sanctions on Russia, on top of additional sanctions overnight on the builder of the Nord Stream 2 and its corporate officials.
The peso was also weaker after the local stock market, PSEi, declined to the lowest in 1.5-months amid increased global market risk aversion, Ricafort said.
Ricafort also said the Brent crude oil price breaching above the $100 mark was a new seven-year high “that could further increase the country’s oil import bill and also could lead to some uptick in inflation.”
The interagency Development Budget Coordination Committee said on Thursday that P3 billion will be released by the government to assist workers in the transport sector, as well as farmers and fisherfolk that are affected by rising oil prices.
In a statement, DBCC—composed of the heads of the National Economic and Development Authority, Department of Finance, and Department of Budget and Management—said it is closely monitoring the factors affecting the oil prices in the country.
“Given recent developments, the government remains ready to provide targeted relief assistance and support to address the impact of the oil price hike for affected sectors, especially public utility vehicle (PUV) drivers, farmers, and fisherfolk,” it said.
The Bangko Sentral ng Pilipinas, meanwhile, said it is sticking to its previous inflation forecast of 2 to 4 percent for 2022 and 2023 despite the war in Ukraine.
“I know that many people are getting nervous because of the Russia-Ukraine incident and of course the rising oil prices but… the situation is fluid,” BSP Governor Benjamin Diokno said in an online briefing Thursday.
Diokno earlier projected inflation might remain within the target range of 2 to 4 percent as long as oil prices remained below $95 per barrel.
“There will be no change in our [inflation] forecast,” he said.
Earlier, Arnel Ty of the LPG Marketers Association warned that if Russia invades Ukraine and oil prices continue to spike, this could lead to a serious global shortage of the commodity. Other analysts fear that world oil prices could go as high at $120 per barrel.
The Department of Energy, however, said there was enough oil supply to meet the country’s demand.
Also on Thursday, presidential candidate Senator Panfilo Lacson warned that the Russian invasion of Ukraine could set a precedent that could have an impact on the Philippines’ maritime dispute with China.
“What is dangerous for us, if a precedent was established that Russia can invade what they’re claiming as their territory, a precedent might be established, it might happen to… our islands in the West Philippine Sea,” he said.
“I hope it won’t happen. Those are implications that we cannot guess,” he said.