Oil prices may drop to prewar levels in 6-12 months with US-Iran deal

MANILA, Philippines — Local oil prices may return to pre-Middle East crisis levels in about six months to a year once the United States and Iran finally reach a deal to stop the war, a Department of Energy (DOE) official said on Monday.

Optimism about the peace agreement between the countries involved in the military attacks mounted after US President Donald Trump claimed major progress on talks with Iran.

The deal, which is expected to be signed in Switzerland on Friday, supposedly involves the reopening of the Strait of Hormuz, a crucial maritime route for energy trade.

For the past weeks, oil prices have remained volatile, although the increases were not as hefty as before, with fuel retailers even implementing rollbacks.

READ: Trump: Deal reached with Iran, Hormuz naval blockade ordered removed

“As far as the oil crisis is concerned, we are grateful for the announcement [from] all the involved countries that there is a real intent to terminate whatever conflict they have,” Energy Secretary Sharon Garin said in a media briefing.

“And we are praying that they are and hoping that they will finalize the deal this Friday,” she added.

Disrupted supply

While the advancement in the peace talks may result in a drop in prices, Energy Undersecretary Alessandro Sales said it would take some time before Filipinos could see pump prices returning to prewar levels.

READ: Peso returns to 60 level as US, Iran announce tentative peace deal

“Maybe there’s space for it to come down as well, but does it go down to the prewar level? Not immediately, probably another six to 12 months. It’s really just an issue of restarting the supply that was disrupted by the war,” Sales said.

Before the US and Israel mounted an attack on Feb. 28 on Iran which retaliated by striking American military bases in the Middle East, the prices per liter of gasoline and diesel in Metro Manila ranged from P49 to P77.03 and P48 to P73.61, respectively.

Aside from the closure of the Strait of Hormuz, key power infrastructure in the oil-producing region were destroyed in the bombing attacks.

This prompted other countries to halt their fuel export operations, leaving some markets, like the Philippines, to scramble for new suppliers.

According to government data, 97 percent of imports of liquid petroleum products such as diesel, gasoline and kerosene are from refineries in Asian countries. These groups also get their crude oil from the Middle East.

Weekly price adjustment

Starting June 16, motorists can expect rollbacks in pump prices with Garin announcing a drop in the price of diesel ranging from P3.71 to P5.71 per liter.

Kerosene, on the other hand, will become cheaper by 50 centavos up to P2.50 per liter. As for gasoline, prices could either drop per liter by 32 centavos or go up by P1.68. /cb