Oil price, Forex & traffic: Triple whammy
As of the end of January, 2018 (when TRAIN was already in full swing), gasoline (unleaded and premium gas) retail prices have started in the high P40s and low P50s per liter for both small and major players, respectively.
Today, the prices (unleaded and premium gas) are in the high P50s and low P60s, respectively. On the other hand, at the start of the year, diesel prices ranged from the high P30s and low P40s. Today, prices range from high P40s and low P50s.
Most of us were quick to blame TRAIN solely for these increases. Well, understandably, because the timing of these increases coincided with the implementation of the TRAIN law. Yes, the excise tax may have contributed but not as significant that it deserves to be branded as the main culprit.
The fact is, global oil prices increased considerably this year as historical data from Brent will show. Why do we use Brent’s information? It is because “Brent oil makes up more than half of the world's globally traded supply of crude oil.”
So that, “Brent blend crude serves as benchmark price for purchases of oil worldwide.” It is traded electronically via the ICE futures exchange.
To recall, twelve months ago (October 1, 2017), Brent oil was selling at US$57.51 per barrel. Today, the price is US$85.52 per barrel. Simply put, Brent oil rose by almost 50% in a year. Brent also started this year at a not so high US$69.08 per barrel. Therefore, in the first nine months of this year alone, global prices of oil (Brent) rose by 23.8 percent.
It is no secret that our country imports at least 90 percent of our domestic oil consumption. That’s huge in any language. Since global oil trade is denominated in US$, our peso’s performance against it is a huge influence too. Remember, on the first working day of the year, the peso-dollar exchange rate was P49.857 to a dollar. Last Friday, October 5, the exchange rate was at P54.345 to a dollar. It simply means that our peso depreciated further against the dollar the first nine months of the year by 9 percent. Consequently, not only that we bear the brunt of the rampaging oil price rise, we have to also spend more pesos in every dollar of oil imports.
With these increases in global prices of oil coupled with the peso’s weakness against the US dollar, local retail prices have been doubly hit. Collectively, with these two scenarios prevailing, fuel prices are already sickening. Worse, in huge metropolis like Metro Manila and Metro Cebu, where traffic jams double ones fuel consumption, oil-related miseries are becoming so unbearable.
Remember, our traffic situation is known worldwide through a study of Japan's International Cooperation Agency or JICA. To recall, in 2012, JICA’s study revealed that “the time lost by people within the traffic jams plus the cost of operating vehicles in Metro Manila and neighboring towns add up to around P2.4 billion per day.” Well, that was six years ago. Today, it could run to more than P3 billion a day.
Moving forward, indicators are not on our side. Today, as sanctions on Iran take effect, oil price indicators are in the upward trajectory again. Some oil experts, in fact, predicted that the possibility that it may reach US$100 per barrel again is not remote. Remember, historically, oil price almost hit US$150.00 per barrel already.
Moreover, the country’s imports outpace exports. For instance, in June, 2018 alone, total imported goods amounted to US$9.05 billion. On the other hand, total export sales for the same month amounted to US$5.70 billion. Obviously, in trade alone, the net dollar outflow during the month was a whooping US$3.35 billion. With such deficit, our monthly dollar inflows from the OFWs at US$2.0 billion will not be enough to cover it. Not only that, with a stronger dollar, hot moneys are also going out of the country as foreign investors shift to it.
You may not also believe it. Though prices of cars may have been affected by a stronger dollar, car sales are still picking up. Well, thanks to our OFWs. They got more pesos now for every dollar earned abroad. Consequently, they are adding to the traffic congestions in the metropolis.
All these three unfavorable conditions in the mix, the situation can go from bad to worse. Indeed, a triple whammy.
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