The Philippines could be hit the hardest should world oil prices spike to $100 per barrel by the end of the year, according to analysts at Oxford Economics, who expect oil price to motor this year amid expectations of tight global supply.
In a research note, Oxford Economics said it sees “a risk” that rising oil prices “have further to run” amid tensions in the oil-rich Middle East, adding that based on its simulation, inflation could surge and the global economy could fall 0.6% below baseline by fourth quarter of 2020 under a $100-per-barrel scenario.
“We see increased risks of significantly higher oil prices. Although Saudi Arabia will likely boost production to partially offset the impact of the US ending waivers on Iranian imports, global spare capacity is being drained,” the think tank said.
“In the short-run, it is likely the supply impact will be offset by higher production elsewhere, but the market is tightening and all it would take is one more shock to supply and oil could reach $100pb,” it added.
“We simulate Brent rising to $100pb by the end of 2019 (corresponding to West Texas Institute (WTI) oil reaching $89pb).”
The US removal this week of waivers that allowed countries to buy from sanctions-hit Iran is expected to hit oil supplies, though analysts are keeping watch on the region and whether OPEC responds by opening up the taps.
Oil kingpin Saudi Arabia meanwhile on Wednesday said it had no immediate plans to raise oil output to offset the move by Washington.
In the same research note, Oxford Economics said a $100-per-barrel oil price would be extremely damaging to oil-importing emerging markets such as the Philippines — where the economy could shrink 1.2% below baseline in 2020.
On the flipside, oil exporters Russia, Saudi Arabia and UAE could benefit most from soaring oil prices.
“The hardest hit economies in 2020 are large oil-importing emerging markets such as Philippines (-1.2% to GDP), China (-1.1%), India (-1.0%) and Argentina (- 0.9%),” Oxford Economics said.
“As a proportion of their income, consumers and businesses in advanced economies tend to use oil less intensively and so are less negatively affected,” it added.
High oil prices partly fanned Philippine inflation in 2018, which saw consumer price growth hit a near-decade peak in September and October before it started to ease.
Stubbornly high inflation last year and tighter monetary policy weighed on consumer spending, which has traditionally been the driving force behind growth in the Philippines, and crimped economic expansion to a three-year low of 6.2% in 2018.