Diokno sees fuel prices stabilizing as OPEC increases production

THE DECISION of major oil producers to stick with their plans to raise crude production in February would likely bring down fuel prices, which in turn could keep inflation within target, Bangko Sentral ng Pilipinas Governor (BSP) Benjamin E. Diokno said.

“Unlike in 2021, where the oil industry was in deficit position (demand exceeded supply), in 2022 the industry will be in surplus position (supply exceeds demand),” Mr. Diokno said in a Viber message.

A group of producers comprising the Organization of the Petroleum Exporting Countries and its allies (OPEC+) are pushing through with a planned increase of 400,000 barrels per day for February. OPEC+ is scheduled to meet again on Feb. 2.

“The increase in production by OPEC will help temper fuel prices and enable the Philippines to dampen inflationary pressures moving forward,” Department of Finance Chief Economist Gil S. Beltran said in a text message.

Mr. Diokno also noted demand for aviation fuel will likely drop as international travel takes a hit from the ongoing Omicron-driven surge in coronavirus disease 2019 (COVID-19) infections worldwide.

“Most advanced economies and many emerging economies are facing persistently elevated inflation; those with oil reserves — for example, US, UK and other countries — maybe compelled to release their oil reserves,” he added. 

Amid recent developments, the BSP chief said a hike in transport fares is “unlikely” as public transportation capacity will be raised alongside easing mobility curbs.

“By and large our inflation forecast will hold (threshold is $95 a barrel for two years), hence no change in existing outlook. This does not mean that there will be no adjustment in the current accommodative monetary policy in the next two years. There might be, but it will be based on other factors, not higher oil prices,” Mr. Diokno said.

In 2021, Philippine inflation averaged 4.5%, which is above the 2-4% target by the central bank and much faster than the 2.6% in 2020. The elevated inflation was attributed mainly to low supply of meat and higher global oil prices.

ING Bank N.V. Senior Economist Nicholas Antonio T. Mapa said the OPEC’s announcement reflects how global oil prices are not only moved by supply and demand but by politics as well, noting the production increase is helpful for net importers like the Philippines.

“As of the moment, oil prices remain quite elevated but the latest announcement may help energy costs to moderate in the near term, which in turn could bode well for energy importers such as the Philippines,” Mr. Mapa said in an e-mail.

As of Jan. 11, gasoline, diesel, and kerosene prices rose by P2.60, P3.50, and P2.75 year to date.

Mr. Mapa said inflation could return to within the 2-4% target range this year due to base effect, the rebasing of the consumer price index, and the likely moderation in oil prices.

However, he noted inflation could pick up pace in the first two months as food prices reflect the impact of Typhoon Odette.

In December, the headline inflation eased to 3.6% from 4.2% in November.

The central bank expects the consumer price index to increase by 3.4% in 2022 and by 3.2% in 2023.

The BSP’s inflation projection is based on the assumption that Dubai crude oil will average $72.66 per barrel in 2022 and $68.74 per barrel in 2023.

Reuters on Friday reported Brent crude futures settled at a 2-½-month high of $86.06 a barrel, up by 5.4% week on week.

Last week, Mr. Diokno said the central bank is unlikely to raise interest rates in the first half of 2022 to support recovery. — L.W.T. Noble