How Filipinos benefit from lower oil prices

Filipino motorists cheer whenever oil companies rollback prices of petroleum products.

 

Almost every week, oil companies in the Philippines have been rolling back pump prices as crude prices continue to slide in world markets.

 

In Asia, oil prices fell on Wednesday as renewed concerns over global demand and high stock levels halted a rally that pushed up prices by about 19 percent over the past four sessions, according to a report by Reuters.

 

In the report "Understanding the Plunge in Oil Prices: Sources and Implication," the World Bank noted that "oil prices fell sharply in the second half of 2014, bringing to an end a four-year period of stability around $105 per barrel."

 

While prices have gone down by nearly 60 percent, oil prices are still are still expected to fall further this year, World Bank senior country economist Karl Kendrick Chua said in an interview with GMA News Online in the middle of last January.

 

"This means a lot of opportunities for us to boost consumption and business spending," he said.

Flourishing sectors

Who benefits from the free-fall of oil prices?

 

The sectors that will flourish during these times are those that cater to consumers, Bank of the Philippine Islands (BPI) economist Antonio Mapa said.

 

"Retailers are one of the beneficiaries, because they are the ones that stir personal consumption," he said, noting that consumption spending accounts for 68 percent of the economy.

 

In general, the drop in oil prices is good for companies as their expenses decline, COL Financial Group head of research April Tan told GMA News Online. 

 

"Delivery cost and packaging cost of companies are lower because prices of raw materials go down too," she said.

Tourism and airlines

 

Also expected to benefit from the continued decline of oil prices is the airline industry. This means "the travel sector will prosper as the airlines removed surcharges, so more people are seen to travel," according to the BPI economist.

 

On January 12, the Civil Aeronautics Board ordered airlines to remove the fuel surcharge from airfares – a move that is expected to lower domestic airfares by P200 to P500 and by as much as P15,000 on international tickets.

 

In a separate interview, Papa Securities Corp. analyst Joanna Capiral said more people are expected to travel.

 

The impact of eliminating the fuel surcharge on the bottom line of would be "...  offset by the increase in the number of passengers," she said.

 

In 2011, airlines added fuel surcharge to airfares in light of the erratic movement of fuel prices at that time. It was implemented to help airlines recover from losses due to the high prices of jet fuel.

With lower petroleum prices people are also encouraged to use their cars.

 

"There is higher traffic volume, mas marami mag-ba-bayad ng toll fees," Capiral said.

 

She said commuters have also benefited from lower jeepney.

 

The Land Transportation Franchising and Regulatory Board approved a P1 rollback in the minimum jeepney fare last December.

 

Remittances and foreign trade

 

Better trade and higher remittances are also expected to benefit other oil-importing economies, like China, Japan and Europe, World Bank's Chua said.

 

"Our major trading partners – China, Japan, Europe – are also major importers and these economies would be helped by the oil prices and therefore improve prospects in terms of trade and remittances with these countries," he noted.

 

The Middle East – home to the world's largest oil producers – faces challenges with the continued slide in oil prices.

 

While some 2 million overseas Filipinos are working in the Middle East, remittances to the Philippines is not expected to suffer as the deployment of Filipinos to other countries remains robust, Chua said.

 

"We always thought remittances would be pro-cyclical – meaning, if growth slows in these countries, remittances would be low," he said.

 

"But during the 2009 crisis, we did not see the impact, or remittance falling to negative. We attribute this to the dispersion of OFWs," he noted.

The consumers is a winner in this situation.

 

Take, for example, the lower prices of cooking gas or liquefied petroleum gas (LPG).

 

Capiral said there may be lower electricity cost as some power plants use fossil-based fuel.

 

"Generally, lower oil prices reduce energy costs as prices of competing energy materials are forced down too, and oil-fired electrical power is cheaper to produce," the World Bank noted in its report.

 

Lower oil prices also "boost the purchasing power" of individuals, Capiral said.

 

"There is higher disposable income for households that could lead to higher consumer spending," she noted, saying personal expenses will increase and benefit retailers, not to mention shopping malls and restaurants.

Raise excise tax

 

On Friday, however, the Washington-based World Bank urged Manila to raise the excise tax on petroleum products to offset revenue losses from oil imports. The revenues raised could then be invested to support long-term growth.

 

In a briefing last Friday, Chua told reporter the impact of lower prices on the fiscal side is significant unless the Philippine government comes up with offsetting measures.

 

"In the Philippine economic update, we proposed that we use this window of opportunity to raise the excise tax on petroleum as this is one of the most equitable, efficient," he said, noting the excise tax as one of the major taxes on oil has not been adjusted since 1997.

 

As a result, the Philippines suffers from huge revenue losses that in turn shaves precious growth from the gross domestic product (GDP).  

 

"Since 1997 up to today, we have been losing on average 1 percent of GDP, close to P120 billion a year," Chua said. – VS, GMA News