BSP flags Dubai crude price as inflation driver in 2025

MANILA, Philippines —  While projections for global crude oil prices have been revised downwards following signs of weakening demand, the Bangko Sentral ng Pilipinas (BSP) warns that inflation may breach the two to four percent target in 2025 and 2026 if Dubai crude oil prices surge.

The BSP said scenarios ranging from $80 to $130 per barrel were simulated to determine the impact of potential world oil price outcomes on the inflation forecasts for 2024 to 2026. The scenarios assume oil prices will remain at these levels starting September 2024.

“Keeping all else constant, inflation could breach the two to four percent target range if Dubai crude oil prices average above $90 per barrel in 2025 and above $100 per barrel in 2026,” the BSP said in its latest monetary policy report.

Based on the projections, the impact of a $80-per-barrel scenario can add 3.4 percentage points to inflation this year, 3.3 percentage points in 2025 and 3.5 percentage points in 2026.

Meanwhile, the impact of the $130-per-barrel scenario can add 3.6 percentage points in 2024, 5.5 percentage points next year and 4.3 percentage points in 2026.

The projections focused on the direct effects of higher global oil prices on inflation, such as increased fuel costs. However, it does not account for potential second-round effects like adjustments in transport fares, higher food prices and wage increases.

On the other hand, the BSP lowered the assumptions for global crude oil prices for 2024 and 2025 compared to the previous round. Dubai crude oil is expected to average $80.70 per barrel this year, lower than the $83.69-per-barrel forecast in May.

It also sees Dubai crude oil slightly lower at $74.13 per barrel next year from $79.11 per barrel previously, before easing further to $71.36 per barrel in 2026.

“Spot prices declined during the last week of July, partly due to signs of slowing global oil demand growth, particularly in China,” the BSP said.

The US Energy Information Administration expects the recent round of production cuts by the Organization of the Petroleum Exporting Countries (OPEC)+ will reduce global oil inventories over the next three quarters and partly offset the slowdown in demand.

“Supply conditions are anticipated to return to moderate inventory levels in the second half of 2025, following the expiration of voluntary OPEC+ supply cuts in the fourth quarter of 2024 and as production growth outside OPEC+ begins to outweigh global demand growth,” the BSP said.

Meanwhile, global non-oil commodity prices are expected to ease in the coming years due to La Niña, which causes wetter conditions favorable for agriculture production.

Still, price pressures may come from renewed trade or geopolitical tensions. “Disruptions in the Red Sea due to the Middle East conflict could further increase near-term risks to inflation by raising the cost of imported goods along the supply chain,” the BSP said.