In addition to future purchases, especially from India and China, of the most important ‘raw materials’ for food production, another worrying ingredient is now being added in the global economy, and that is the upward trend in the price of crude oil in the United States. US stock markets.
The Dominican Republic cannot escape these concerns, an economy heavily dependent on derivatives and with greater consumption compared to its competitors in Central America.
The price of West Texas Intermediate (WTI) crude oil is estimated to be around US $ 60 per barrel and its use is common in production, including raw materials such as yellow corn, in machines that use diesel to sow grain on remote markets.
As well as other crude oil derivatives used in transportation and industries. This is very bad news for the Dominican economy. For every dollar the price of a barrel of crude oil rises, the impact is more RD $ 3,000 million, according to economist Henri Hebrard.
In this year 2021, the national budget has estimated a price of US $ 45.50 per barrel of oil, while the crude oil trend continues to rise, signaling the start of the global economic recovery.
For Hebrard, the concern that a barrel is over $ 58 because “this will cost the Dominican economy more than RD $ 3,000 million” is even worse compared to the figure under consideration in the national budget. In addition to the cost of the electricity subsidy for the state, even with the improvement due to generation in Punta Catalina, because there is a problem unit that uses diesel. Domestic fuel prices will also continue to rise, as the government has taken a share, expecting it to fall to compensate, but now the expectation is of an improvement in the global economy, of a reduction in production in the OPEC, such as aid in the US. which will cause the dollar’s value to fall, he says. This will drive up the price of raw materials, especially oil.
Hebrard says the picture is complicated because all prices are rising and people’s purchasing power is diminishing and pressuring the economy to increase wages.
External shock
Antonio Ciriaco Cruz, vice dean of economics at the UASD, explained that the oil bill represents 18% of the country’s total imports. When the price of oil rises, it equates to a negative external shock (and vice versa) that the country is undergoing, pushing up fuel prices, urban and freight transport and, in food, food, he said.
According to the economist, the country continues to import about 9.1 million barrels of crude oil annually.
“That means that if the government estimates oil prices (WTI) at $ 44.2 a barrel in the 2021 budget and current oil prices in the international market are $ 58.26 a barrel, it means the country is $ 14.06 per barrel. vat additional., the additional amount of which would be added to the oil bill on an annual basis, ”he said.
If this trend in oil prices continues, around $ 58.26 a barrel by 2021, the additional amount added to the oil bill this year would be $ 126.5 million, he said.
In a scenario of higher prices, the consequences would be much more dangerous, as this would push up the price of food, fuel and exchange rates, among other things, affecting the real wages of the population.
KNOWING MORE
Producers
The Organization of Petroleum Exporting Countries (OPEC) and its allies called OPEC + have maintained the cut, which increases demand and prices.
Bloomberg
WTI crude oil and London Brent prices yesterday closed with delivery prices to March at US $ 58.68 and US $ 61.47 respectively. These prices have a higher reference since January 2020.