With the US dollar getting stronger by the day, dollar-peso exchange rate breached P57 on September 5, 2022 and continued to display its strength until yesterday. Thus, nowadays, among professionals and businessmen, whether in the board room, coffee shops or barbershops, the dollar’s strength and the persistently high oil prices either top or end their discussions.
However, before we make our conclusions, let us make a brief recall of what happened a little over a decade ago. Likewise, on July 17 2006, when the exchange rate was a seemingly uncontrollable P54.8620 to a dollar, both educated and unschooled critics became instant prophets of doom. Doomsayers, as they have always been, were trumpeting here and there that the country was holed into a bottomless pit, a hopeless situation.
Yes, inflation rate then was high. Gasoline prices seemed unreachable. Fares went up. Basic commodities appeared as valuable as gold for the underprivileged Filipinos. Poverty-stricken, most of our brother Filipinos settled for crumbs just to fulfill their modest desires to half-fill their empty stomachs.
Then, inversely, when the peso was stronger than the US dollar, we didn’t hear anything but complaints about the strength of the peso. As if, nobody is happy, not anyone gained. In fact, when it was at its strongest on February 28, 2008 at P40.40460 to a dollar, calls for civil disobedience were even floated.
The truth though is, whatever direction the peso goes, certain demographics will always benefit. Exporters and OFWs rejoice when it depreciates and importers cheer when it appreciates. Sadly, the rest will just have to navigate or simply bear the consequences of it.
However, with oil prices rising and the US dollar strengthening (against all currencies) at the same time, the situation will be entirely different. As we also import some of our very basic needs like rice, the impact could be even severe.
Yes, 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 dollars, our peso’s performance against it is a huge influence too. Consequently, not only that we bear the brunt of the rampaging global oil price rise, we have to also spend more pesos in every dollar of oil imports.
Collectively, with these two scenarios (increases in global prices of oil and US dollar’s strength) prevailing, local fuel prices will be more sickening. Moving forward, indicators are not on our side. Today, as the protracted war in Ukraine rages on, oil price indicators aren’t rosy at all. What worsens it is the recent agreement among the OPEC+ members to cut oil production by 100,000 barrels per day. Simply put, we simply enjoyed a negligible oil price reduction for a month as a result of their increase in oil output by the same quantity last month.
Frankly, both augmentation and reduction had too little effect. The increase then was just Saudi Arabia’s simple token to Pres. Biden for his visit to the country. Returning back to the pre-Biden visit production level is just political messaging so to speak. Just trying to tell the USA, Europe and the rest of the importing world that they call the shot.
However, there is a certain development that may just provide some hope for the oil importing world. Reportedly, the talks about a new nuclear deal between the USA and Iran is moving. Though a bit slow, it is progressing. This is a good sign. To recall, prior to the economic sanctions on Iran, it was the second largest producer among OPEC member countries.
According to the Energy Intelligence Research & Advisory (EIRA) unit, if it pushes through, it sees “Iran’s output rising to 2.95 million barrels per day in December before slowly increasing to 3.7 million barrels per day by June next year, assuming a deal is struck in August.” Though we see no breakthrough in August, at least, we are able to see how fast Iran can produce such volume. More importantly, if there is a breakthrough in the current talks, according to EIRA, “it would result in exports rising to between 1.25 million barrels and 2 million barrels per day, respectively.”
Starved with cash because of years of sanctions, more likely, Iran may just optimize its production capacity. When that happens, it shall be regarded among the oil importing countries as the unlikely savior.