BSP’s 2019 oil price assumptions up 40% at $75 to 85 per barrel

The Bangko Sentral ng Pilipinas (BSP) has proposed new macroeconomic assumptions for crude oil prices from 2018 to 2022, implying a 39.1-percent increase in the mid-point assumption for 2019.

For 2019, the central bank has proposed an oil price assumption of $75 to $85 per barrel from an existing assumption of $50-$65 per barrel, the Department of Finance said on Wednesday.

The DOF noted economic headwinds are currently blowing and causing uncertainties in markets as well as the global economy.

“Uncertainties in the global economy arising from the trade war, US President [Donald] Trump imposing sanctions on Iran, and declining Venezuela production scared financial and commodity markets, sending equities and commodity prices gyrating from day to day,” the department said.

“This has resulted in volatile crude oil prices,” it said in the DOF Economic Bulletin on Dubai Crude Oil Prices.

The BSP is proposing new macroeconomic assumptions for crude oil price in the medium-term.

This implies a 39.1-percent rise in the midpoint price assumption in 2019, a 30.4 percent rise in 2020, and a 21.7 percent rise in 2021 and 2022.

The external headwinds would pose serious problems for the Philippines, Michael Ricafort, head of Economic and Industry Research Division at Rizal Commercial Banking Corp., told GMA News Online in a separate interview Wednesday.

“All of these headwinds (expanded US-China trade war and volatility in global oil prices) could result in slower Philippine economic growth, bigger import bill, and wider trade deficit,” Ricafort said.

Legislators and labor groups are calling for the Duterte administration to cancel higher excise taxes imposed on petroleum products this year in line with the Tax Reform for Acceleration and Inclusion (TRAIN) law enacted by the President in December 2017.

They are pinning the blame on the administration’s tax reform law for soaring prices of basic commodities, as inflation ballooned to a nine-year high of 6.7 percent in September.

The tax reform law imposed an excise tax of P2.50 per liter on diesel, from zero, and raised the levy on gasoline to P7 from P4.35 per liter.

The excise tax rate on diesel will go up to P4.50 next year and P6 per liter in 2020. For gasoline, the levy will go up to P9 in 2019 and P10 in 2020.

But the DOF does not see a compelling reason to scrap the existing excise taxes rates on fuel under the TRAIN law, based on recent data on crude oil prices in world markets.

From $82.577 per bbl on October 8, Monday, Dubai crude dropped 2.9 percent on October 12, Friday, to $80.188 per barrel, the DOF noted in its bulletin.

“Similarly, Dubai crude oil futures for the next six months dropped below $80 per barrel,” the DOF said.

“While Dubai oil price levels for the next six months using October 8 futures prices would have required suspension of the adjustment in excise tax for the next six months, the latest prices levels show otherwise,” the department noted.

Financial markets, on the other hand, seemed to have priced in the external headwinds, said Ricafort.

“The markets have already priced in and anticipated all of these developments in recent months, unless new related developments emerge, especially on the Saudi Arabia factor,” he added.

What is seemingly certain at this point is that the predictability factor is out when it comes to market prices.

“Oil prices are very volatile at the moment,” Finance Undersecretary Gil Beltran told GMA News Online in a separate query on Wednesday.

“We will continue to monitor and compute average prices. It should be the average for the whole month and not just one single day. Due to negative news regarding Iran sanctions (which will take effect November 4) and Venezuela’s continuing export decline, experts tell us that oil futures will go back up above $80 per bbl in the next few weeks,” Beltran noted. 

But the current levels of crude oil prices are a negative factor for Philippine growth prospects.

“Global oil prices have already increased by about more than 40 percent year-on-year and about more than 20 percent since the start of 2018, resulting in higher local fuel pump prices, higher Philippine import bill as the country imports almost all of its oil and petroleum requirements, and widened the country’s trade deficit,” Ricafort said.

Ricafort noted that those developments have led to a weaker peso exchange rate against the US dollar, saying the peso has depreciated by at least 8 percent since the start of 2018 that added to the cost of imports and overall inflation.

“All of these factors partly led to higher local inflation, leading to higher interest rates that could slow down local economic growth to better manage inflationary pressures and inflation expectations as well,” he added. — MDM, GMA News