As crude surges to over $100 a barrel, DBCC closely monitoring oil prices

By Luz Wendy T. Noble, Reporter
and Jenina P. Ibañez, Senior Reporter

GOVERNMENT ECONOMIC managers are keeping a close eye on oil price hikes as Brent crude surged over $100 for the first time since 2014 on Thursday after Russia’s attack on Ukraine, offering assistance to sectors affected most by the crisis.

“The Development Budget Coordination Committee (DBCC) is closely monitoring the factors affecting the oil prices in the country,” the interagency group said in a statement on Thursday.

The Bangko Sentral ng Pilipinas (BSP) in its latest assessment said Dubai crude oil would average $83.3 per barrel this year, but would slow down to $79 by the end of 2022.

The fuel subsidy budget can only be released when the average Dubai crude oil price based on the Mean of Platts Singapore reaches or exceeds $80 per barrel for three consecutive months.

Brent crude on Thursday exceeded $100 a barrel for the first time since 2014 after Russia invaded Ukraine, Reuters reported. It rose by 6.5% to $103.78 a barrel, or the highest since August 2014.

US West Texas Intermediate crude futures increased by 6% to $97.58 a barrel.

Despite the surge in crude futures, BSP Governor Benjamin E. Diokno said the central bank is keeping its oil price projections for now.

“As far as the oil price is concerned, our threshold is $95 per barrel, there will be no change in our forecast,” he said at an online briefing.

“But it has to be a sustained increase over $95 to make a significant change in our forecast. But as you know, we adjust our forecast based on the most recent data,” he added.

As the Philippines is an oil importing country, higher oil prices have caused the peso to weaken in recent days. On Thursday, the peso weakened by 24 centavos to P51.34 per dollar.

“I know that many people are getting nervous because of the Russia-Ukraine incident, and of course, the rising oil prices. We don’t know yet [as] the situation is… fast-moving, very fluid,” Mr. Diokno said.

The DBCC on Thursday said the government is preparing to release P2.5 billion for the Transportation department’s fuel subsidy program for over 377,000 qualified PUV drivers. It also noted the Department of Agriculture (DA) has a P500-million budget to provide fuel discounts for farmers and fisherfolk.

Latest data from the Department of Energy showed gasoline, diesel and kerosene have increased by P8.75, P10.85, and P9.55 per liter, respectively, since the start of 2022.

“The DBCC remains committed to taking decisive action to ensure the unhampered supply of goods and services despite the rising oil prices amid the pandemic. These will support our full recovery and sustained growth in 2022 and beyond,” it added.

In a statement sent to BusinessWorld, Energy Secretary Alfonso G. Cusi said the Philippines does not directly import oil from Russia or Ukraine, but imports finished products from China, South Korea and Japan, which get crude from Russia.

“There is already high price speculation coming from the uncertainty of Russia sanction not necessarily on oil supply but indirectly on the monetary ability of Russia to continue accessing the global financial system which will ultimately affect the export-import negotiations with Russia,” he said, adding that crude prices are expected to continue increasing in the next few days.

In a report released on Friday, Moody’s Investors Service said the developments in Ukraine and its impact to oil prices will be a challenge for global central banks.

“Further escalation of Russia-Ukraine tensions would pose an additional challenge for central banks because it would exert upward pressure on inflation due to higher energy prices and would weigh on economic activity,” it said.

REPATRIATION
At the same time, Asian Institute of Management economist John Paolo R. Rivera said the economic impact of the Ukraine situation may also be reflected in remittance inflows.

Data from the central bank showed cash remittances from Ukraine dropped by 10.7% to $121,000 in 2021 from $135,000 in 2020. Its share is relatively minimal to the $3.745 billion inflows that come from Europe.

Malacañang said the Department of Foreign Affairs is currently undertaking the repatriation of Filipinos living in Ukraine. There are about 380 Filipinos immigrants and workers in Ukraine, and six of them have been repatriated.

“Remittances from Ukraine may not be significant [in figures] but they still form part of the contribution in times of economic recovery. We do not discount their contribution,” he said in a Viber message.

STOCKS SLUMP
Meanwhile, the Philippine stock market, along with its regional peers, slumped on Thursday as Russia began its invasion of Ukraine.

The benchmark Philippine Stock Exchange index (PSEi) plunged 151.98 points or 2.06% to close at 7,212.23 on Thursday, while the broader all shares index declined by 75.01 points or 1.91% to close at 3,842.85.

“Market selldown was the knee-jerk reaction due to further inflation threat. Margin squeeze looms for consumer stocks but miners will benefit from rising gold, nickel and copper prices while wider loan spreads favor the banks,” First Metro Investment Corp. Head of Research Cristina S. Ulang said in a Viber message.

Ms. Ulang said investor sentiment will get a boost from the expected move to place Metro Manila under a looser Alert Level 1 by March 1.

Timson Securities, Inc. trader Darren Blaine T. Pangan said investors may stay on the sidelines in the coming days, while observing how the Ukraine-Russia conflict unfolds.

“We’ll have to see if support at the 6,940 level holds, otherwise immediate resistance may be pegged at 7,510,” he said. — with Keren Concepcion G. Valmonte, Alyssa Nicole O. Tan, Marielle C. Lucenio and Reuters