Oil price hike & the USA-Iran conflict

Gone are the days when oil prices were low and vehicular traffic in huge metropolises was manageable and bearable. As what we can all see and have endured, what we now have is obviously the exact opposite. 

Oil prices are, indeed, high and vehicular traffic is horrible. In Cebu alone, there has been no let up as far as traffic jams are concerned. 

Yes, it is true that 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, at the start of the year (January 2, 2019, the first trading day), Brent oil was selling at US$54.91 per barrel. At the end of the year (December 31, 2019), the price was US$66.00 per barrel. Simply put, Brent oil rose by almost 20%. There were months, however, during the year that oil prices went beyond US$70.00 per barrel. 

It is no secret that our country imports at least 90% 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, since middle of February 2017, the peso-dollar exchange rate was prevalently already beyond P50 to a dollar. 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-dollar exchange rate still beyond P50, local retail prices have been badly hit. Collectively, with these two scenarios prevailing, fuel prices are already sickening. Worse, in huge metropolises 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 seven years ago.  Today, it could run to more than P3 billion a day. 

Moving forward, indicators are not on our side. With the conflict between the USA and Iran escalating on account of the killing by US military of Iran’s most revered general, Gen. Qasem Soleimani, pundits are predicting that oil prices may reach US$100.00 (historically, oil price almost hit US$150.00 per barrel already) per barrel. Well, that is if a full blown war happens. 

However, we cannot discount the possibility that both the full blown war and the global oil prices reaching US$100.00 may really happen. The fact is, the day after such incident, Brent crude rose to US$68.70 per barrel. That’s a worrying increase of 3.58% in just a day (from January 2’s US$66.34 per barrel).       

Despite these developments, car sales are still picking up. Well, thanks to our OFWs and the zero-down-payment schemes of car dealers. Consequently, they are adding to the traffic congestions in the metropolises.

What makes the situation worse or doubly painful locally, is that, there are some unscrupulous oil retailers that are taking advantage of our helplessness. As clear as daylight, they are exorbitantly pricing their diesel and gasoline.

Yes, unethically, as some retailers that are also based in Metro Cebu are selling their diesel and gasoline inordinately. Actually, between P4 and P6 per liter higher for gasoline.   More importantly, we wish to point out that these retailers we are comparing are from the same global brand. Therefore, they have exactly the same source.

Indeed, with all these unfavorable conditions (current oil prices, traffic congestions, unethical oil retailers, etc.) in the mix, the situation is already bad. With the possibility that the current situation in the Middle East may escalate into a full blown war, the situation can go from bad to worse.