Energy firms seen to face challenges amid geopolitical issues, say analysts

By Sheldeen Joy Talavera, Reporter

ENERGY COMPANIES are expected to experience challenges in terms of oil input costs amid the conflict in the Middle East, according to analysts, who also said the situation may also present opportunities for exploration firms.

Luis A. Limlingan, head of sales of Regina Capital Development Corp., said in a Viber message that local energy and oil companies might face challenges due to increased input costs, which could hit their profitability.

“However, companies involved in oil exploration and production could benefit from higher prices, offsetting the cost impact on their operations,” he said.

Oil prices rose by 4% on Monday following the military clashes between Israel and the Palestinian Islamist group Hamas over the weekend which drove fears that it could influence oil supply tightening from the Middle East, Reuters reported.

Brent crude inched up by $3.57 or 4.2% to $88.15 a barrel, while US West Texas Intermediate crude rose by $3.59 or 4.3% to $86.38 a barrel. Both benchmarks spiked by more than $4 or over 5%.

“Since the Philippines is a net oil importing country, conservation [is] still a prudent measure amid geopolitical uncertainties that could lead to some uptick in world oil/fuel prices,” Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a separate interview.

“The situation is still uncertain if other Middle Eastern countries that are major oil producers especially Iran will be dragged into the conflict, so far, none of that yet,” Mr. Ricafort said.

In 2022, the Philippines imported a total of 6,892 million liters of crude oil, up 46% from 4,721 million liters in 2021 — which were 100% sourced from the Middle East, data from the Department of Energy (DoE) showed.

DoE Oil Industry Management Bureau Assistant Director Rodela I. Romero said uncertainties could drive up oil prices but may not have a long-term impact.

“Oil prices spike Sunday after the attack but experts say, do not expect a long-term impact on oil and gas prices unless the conflict itself continues to escalate,” she said in a Viber message.

Ms. Romero said the Philippines does not usually source oil from Israel but from the countries that surround it.

“US and [Saudi Arabia] is the biggest [oil producer] so if [the situation] escalates, it could really affect us because fear and uncertainties in the market can drive up prices,” she said in a televised briefing in Filipino.

Carlos Angelo O. Temporal, senior equity research analyst at Unicapital Securities, Inc., likewise said that the impact on global oil supply is expected to be minimal “as long as the conflict remains confined to the two parties.”

Local oil firms implemented rollbacks in the pump prices of petroleum products effective on Tuesday.

In separate advisories, the companies announced a decrease of P2.45 per liter for diesel, P3.05 per liter for gasoline, and P3 per liter for kerosene.

This marks the third consecutive week of rollbacks for gasoline and kerosene, ending 11 consecutive weeks of increases.

“DoE will continue to monitor the developments in the international oil market and whatever the adjustments in the domestic pump price is just reflective of the said international oil market situation,” Ms. Romero said.

Analysts said that local oil producers could benefit from any uptick in world oil prices but present challenges to other industries that are heavily reliant on oil such as transportation and manufacturing ,which could cause increased operating expenses.

“The immediate casualties of higher oil prices would be the logistics sector, particularly airline companies with jet fuel accounting for a large portion of its expenses,” Mr. Temporal said, adding that the consumer sector will also be hit “as higher prices of goods and services may tighten the spending capacity of consumers while higher input costs may lead to margin erosion.” 

Meanwhile, investors are expected to stay on the sidelines to gauge the geopolitical risks that may affect investments in energy companies but are advised to closely monitor the developments.

“Immediately, there is a flight to safe havens for investors in times of potential geopolitical risks. Flight-to-quality until the situation stabilizes, just to be sure/safe,” Mr. Ricafort said.

“Investors should closely monitor developments in the Middle East and their potential impact on oil prices. A surge in oil prices could present investment opportunities for companies in the energy sector, especially those involved in exploration and production,” Mr. Limlingan said.