DOE: Israel conflict won’t affect oil prices
October 12, 2023 | 12:00am
MANILA, Philippines — The Department of Energy (DOE) does not expect the attacks on Israel to have long-term effects on oil and gas prices, unless the conflict escalates.
DOE Oil Industry Management Bureau director Rino Abad, in a television interview yesterday, said that based on DOE’s assessment, the ongoing conflict in Israel poses a very low chance of resulting in actual supply disruption.
“But of course, the other neighboring countries in the Middle East led by Saudi Arabia, Kuwait and Qatar, that is where we traditionally get crude oil. The only issue there is if there will be a problem in the supply in these countries,” Abad said.
“However, it appears there is a very low chance that these countries will encounter problems since they are not active participants in the conflict,” he said.
Michael Ricafort, chief economist treasury group of Rizal Commercial Banking Corp., said the situation is still uncertain if other Middle Eastern countries that are major oil producers, especially Iran, would be dragged into the conflict.
“If dragged directly into the conflict amid the proxy war, Iran could potentially use as a threat the blockage of the Strait of Hormuz, an important passage for international oil tankers, in retaliation to any action against it,” he said.
But so far, Ricafort said none of that risk is happening yet.
Abad said based on the first two trading days of the week, global oil prices have actually gone down.
“If this continues for the rest of the week, then we might even see a rollback next week,” he said.
In terms of world supply and demand balance, there is an expected deficit up to the end of the year, according to OIMB assistant director Rodela Romero.
Just yesterday, local oil firms slashed prices by P3.05 per liter for gasoline, P2.45 per liter for diesel and P3 per liter for kerosene. This marks the third consecutive week of reductions in gasoline and kerosene prices.
The Manila Electric Co. (Meralco) is also keeping a close eye on developments in the ongoing conflict in Israel, as further escalation could also affect energy prices.
“Usually, if there are periods of uncertainty that may threaten the supply of fuel, especially in that area where much of the LNG (liquefied natural gas) and crude oil prices of the world is sourced, threatened or is in danger of being cut, then there might be an increase in fuel prices,” Meralco vice president and head of utility economics Lawrence Fernandez said.
As for the power sector, Fernandez said a rise in crude oil prices could somehow impact Meralco rates through its suppliers using Malampaya natural gas.
“We don’t use crude oil itself for power generation. But the crude oil price is a benchmark for Malampaya price. So if crude oil prices increase, then Malampaya price will follow. Like before, when it went down, Malampaya price also went down,” he said.
Fernandez said that in the case of Meralco, about 30 to 40 percent of its supply comes from power plants that make use of Malampaya natural gas.
“So if the fuel of that one-third goes up, then there’s a large pressure on the generation charge to also go up,” he said. – Danessa Rivera