OF the myriad repercussions from the still ongoing coronavirus epidemic, there is one positive effect for us in the Philippines. The outbreak may depress the world price of oil to as low as $57 per barrel – bad news for the oil-producing nations of the Middle East, but on the positive side for all those whose economies are hugely dependent on this basic import.
We may recall how in 2018, the inflation rate in the Philippines – market prices – zoomed month after month until it peaked at 6.7 percent in September. That was the year the government imposed a tariff of P2 on every liter on imported diesel, but the government’s economic managers said the principal reason for the high market prices was the increase that year of world oil prices.
In 2018, these went above $70 a barrel after the United States rejected the western allies’ economic agreement with Iran, cutting off Iran’s market for its oil. This was followed by a decline in Venezuela’s oil production. There were fears that because of the uncertainty in world production, oil prices might go up to as much as P100 per barrel. But the Saudis, Russians, and other oil producers raised their output to offset the drop in supply, and world oil prices settled down to $56.96 by November.
It was during that period of high world oil prices – in the middle of 2018 – that Philippine diesel prices rose, especially since there was now an additional tariff of P2 per liter of imported diesel in that first year of the Tax Reform Acceleration and Inclusion (TRAIN) law.
In comparison with the high of R70 reached by world oil prices in 2018, it is now down to as low as $57 a barrel, the Institute of International Finance (IIF) said early this week. And it is all because of the coronavirus outbreak that began in China and has now reached 29 countries and two territories around the world. The epidemic may curb the demand for oil in China and other Asian countries, depressing world oil prices to as low as $57 a barrel, the IIF said.
We don’t know how long the epidemic will last and how much it has affected industry in China and other Asian nations. As the epidemic goes down, the world economic situation will improve and world oil prices will normalize.
But as of now, the expectation is a period of low oil prices and that will help our oil-dependent economy in the Philippines.
