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During the trading week of May 20-24, 2024, the price of Dubai crude decreased by approximately $0.15 per barrel. Similarly, international prices for gasoline, diesel, and kerosene fell by $0.15, $0.30, and $0.05 per barrel, respectively.
Reasons for the Price Adjustment
Several factors contributed to the decrease in oil prices during this period:
- US Inventory Build and Bearish Demand Sentiment: According to the US Energy Information Administration (EIA), US crude oil inventories rose by 1.8 million barrels to 458.8 million barrels for the week ending May 17, 2024. This increase in inventory levels highlighted weaker physical demand for oil.
- US Federal Reserve’s Aggressive Tone: Recent statements from the US Federal Reserve signaled a more aggressive stance, which boosted the US dollar and exacerbated concerns about oil demand.
- Geopolitical Factors: Despite the potential impact of geopolitical events such as the death of Iran’s president and health concerns regarding the Saudi king, these developments did not significantly affect oil prices, reinforcing the bearish sentiment in the market.
- OPEC’s Upcoming Decision on Output Cuts: Market participants were also expecting the decision of the OPEC over the extension of the supply cuts. Market fundamentals as of the previous week pointed to a probable full rollover of the supply cuts at the June meeting.
- Asian Market Dynamics: The Asian gasoline market lost some of its strength due to a decline in the US RBOB-Brent spread even though the US gasoline stockpile declined. This was aggravated by poor demand across Asia; widening East-West spread and cheaper Asian gasoline compared to European barrels put pressure on prices. Furthermore, the forecast of real household income trends in Japan led to the expectation of a decline in the country’s domestic demand for gasoline.
- Asian Gasoil/Diesel Complex: The sentiment prevailing in the Asian gasoil and diesel markets was bearish because of long supply. The market participants anticipated more supply from the Chinese refineries that have come back to the market after the maintenance and less demand from India due to the monsoon season.
Foreign Exchange Impact
During this period, the Philippine peso also declined against the US dollar and the week-on-week average declined by P0.45 to P58.09 from P57. The average number of new cases reported per day was 64 in the previous week. This depreciation compensated for the marginal decline in global oil prices thus affecting domestic oil price.
Domestic Oil Prices
This was due to the fact that the peso declined against the US dollar in the week to September 9, and thus the drop in oil prices did not lead to a reduction in domestic prices as well. As it is known, on May 28, 2024, the oil companies in the Philippines raised the price of gasoline and diesel by P0.20 per liter and kerosene by P0.30 per liter.
Year-to-Date Adjustments
As of this date, the cumulative adjustments for gasoline and diesel have resulted in net increases of P7.55 per liter and P4.85 per liter, respectively. Meanwhile, kerosene has experienced a net decrease of P1.05 per liter.
Summary
There are various factors that have led to the recent fluctuations in both the international and the domestic oil prices and they include the recent changes in the US crude inventories, geopolitical factors, the market expectations on the decisions of the OPEC and the regional market factors. The fluctuations in the price of oil also contributed to the changes in the domestic prices in this case, compounded by the depreciation of the Philippine peso.