The near-collapse of international oil prices has weakened the status of the Organization of Petroleum Exporting Countries as a commodity cartel. World oil prices have dropped to near seven-year lows, after Opec members failed to reach an agreement last week to curtail their combined production.
Oil prices have fallen to below $40 a barrel and there are no signs that they will recover, or even return to $100 just in June last year. The free fall marks a sharp reversal from years of surging oil prices amid the political tension in the Middle East. Falling oil prices are also a far cry from the era when Arab countries imposed an embargo in response to the US involvement in the 1973 Yom Kippur War. That embargo fortified Opec’s strength as a cartel and amplified the market value of oil as a precious commodity.
Falling oil prices will be a boon to struggling economies like the Philippines. They signal lower inflation rate in the near horizon, especially in countries that depend heavily on imported oil for power generation and transportation fuel.
Declining oil prices, however, are also a symptom of a weak world economy. Big economies like China, Japan and the Eurozone are consuming less oil because of weak consumer demand, causing world oil prices to plummet by over 60 percent in 18 months.
Excess supplies have also triggered the drop in oil prices. Oil extracted from North American shale rock and non-Opec countries are competing with the cartel’s output.
But policy makers know all too well that oil prices will stage a comeback, starting with a strong US economy. The Philippines, being heavily dependent on imported oil, should not be complacent in the wake of falling oil prices.
They should seize the initiative by encouraging the use of alternative and renewable sources of energy. The Energy Department, for one, should accelerate the implementation of electric tricycles to reduce oil consumption and protect the environment.
Tapping renewable energy resources is the best bet against Opec and the fuel it sells. Renewables also insulate the Philippines from the vagaries of the commodity market.