DoE sees fuel price relief from US-Iran deal

The Department of Energy (DoE) on Monday said a preliminary US-Iran deal to end the war and reopen the Strait of Hormuz could pave the way for further declines in local fuel prices, after the news sent global oil prices lower.

US and Iranian officials on Sunday said they have reached a framework agreement to end the war, which includes the reopening of the Strait of Hormuz and ending the US blockade of ports in Iran. 

Global oil prices dropped on the news of the deal, which is expected to be formally signed on Friday.

“The prospect of the resumption of oil shipments through that waterway, and the potential easing of global energy prices that may follow, is a positive development we are watching closely and cautiously with optimism,” Energy Secretary Sharon S. Garin said at a briefing on Monday.

Local financial markets also cheered the news of the US-Iran deal.

The peso jumped by 87 centavos to end at PHP 60.48 per dollar, returning to the PHP 60 level for the first time in over a month and posting its strongest close since May 7’s 60.42.

The Philippine Stock Exchange index surged by 6.13% or 362.82 points to close at 6,272.88 on Monday, which was its highest finish in more than three months or since March 6’s 6,320.41. This was also the PSEi’s best single-day performance in over six years or since March 26, 2020, when it rose by 7.44% or 373.82 points to 5,401.28.

Ms. Garin expressed hope that the US and Iran would finalize the agreement by Friday.

“This is good news. It’s not just for the Philippines but also for the whole world to breathe a sigh of relief because the conflict that has caused so many problems in our country and all the other countries looks like it’s coming to an end,” she said.

Global oil prices have surged since the US-Iran war disrupted shipping through the Strait of Hormuz, through which roughly 20% of the world’s oil supply pass.

The Philippines was one of the most affected by the oil shocks, as it imports at least 90% of its oil supply from the Middle East.

Ms. Garin said she hopes the rollback in fuel prices will continue in the next few weeks.

“We hope that this (the rollback) continues, especially with the news from the progressing talks among the countries involved in the current Middle East war,” Ms. Garin said, adding that the pump prices are not yet expected to return to the prewar level of around PHP 50-PHP 60 per liter.

For this week, the DoE said gasoline prices could either go down by PHP 0.32 per liter or increase by as much as PHP 1.68 per liter.

The DoE said diesel prices will decline by PHP 3.71 to PHP 5.71 per liter, while kerosene prices will drop by PHP 0.50 to PHP 2.50 per liter.

Following the latest oil price adjustment, pump prices are estimated at PHP 104.68-PHP 106.68 per liter for gasoline, PHP 68.89-PHP 91.29 for diesel, and PHP 102.10-PHP 137.50 for kerosene.

Energy Undersecretary Alessandro O. Sales said there may still be room for prices to go down but would not probably return to prewar levels.

“It really comes down to restarting the supply that was disrupted by the war as the return of supply isn’t instantaneous,” Mr. Sales said.

As of June 12, the country’s fuel stockpile is equivalent to 46.37 days, lower than the previous week’s 47.09 days.

Ms. Garin said the Middle East conflict highlighted the country’s vulnerability to oil supply disruptions, prompting the government to develop measures such as the oil transition plan to reduce reliance on imported fuel.

Leo P. Bellas, president of Jetti Petroleum, Inc., said while prices are expected to decline in response to recent developments in the Middle East conflict, a definitive deal is still needed.

“But sentiment could affect the continued decline in prices should there be a lack of a definitive agreement between the US and Iran,” Mr. Bellas told BusinessWorld.

“Even if a resolution is reached, normalization of physical flows will take months, keeping prices above the prewar levels for some time,” he added.

Bridgette Carmel C. Lim, senior vice-president and chief operating officer of Top Line Business Development Corp., said the US-Iran peace deal is generally positive for the oil market as it reduces geopolitical risk and ease concerns over potential supply disruptions in the Middle East.

“If negotiations continue to progress, we could see some downward pressure on crude prices as the risk premium that was built into the market during the conflict gradually unwinds,” Ms. Lim said via Viber. — Sheldeen Joy Talavera, Reporter