Reports that the OPEC cartel has agreed to hike their current production level by 1 million barrels more of crude oil per day is a welcome development that would help arrest the recent spike in global energy prices.
Analysts are quick to point out that the OPEC move does not actually constitute increase in production output. It was merely to enforce their agreement in November 2016 to cut production by 1.2 million barrels per day. However, the production problems made the actual cuts even deeper.
The steady uptrend in the prices of oil reached its peak when the benchmark Brent crude hit $80 per barrel, the highest since November 2014. Market analysts point to the deep production cuts of OPEC and other major producers like Russia as the principal factor that drove oil prices up.
It could not have come at a worse time for the Philippines which had barely begun implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) that included excise taxes on fuel.
The result is a five-year high inflation of 4.6 percent recorded in May. Rising prices of basic consumer goods have prompted calls for suspension of the implementation of TRAIN.
Compounding the problem was the timing of the US Federal Reserve to increase interest rates early this month, weakening the Philippine peso to a 12-year low of P53 to a dollar.
Notwithstanding the conservative increase in OPEC’s production output it would certainly relieve in the long run the current pressures against our domestic economy.
But the undeniable fact that our economy is hostage to the pendulum swings of the world oil market trends necessitates a deeper look into the agreement between the Philippines and China for possible joint oil and gas exploration on the disputed territories in the South China Sea.
A study by the US Energy Information Administration estimates reserves of 5.4 billion barrels of oil and 55.1 trillion cubic feet of natural gas in Recto Bank (Reed Bank), the area targeted for exploration.
While critics raised concern over China’s sincerity amid its aggressive posturing to enforce its territorial claim, there is wisdom in pursuing the joint exploration.
If the estimated reserves are proven to exist, that is a resource that would remain untapped if we shun joint exploration. On the other hand, joint exploration and agreement on sharing of the resources could help ease our dependence on the vagaries of Middle East oil production.
It is axiomatic that a reliable supply of energy security is critical for sustained economic development. It is imperative that we explore all avenues for improved energy security.
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