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Peso drops vs dollar as oil prices climb after OPEC+ fails to reach deal

THE PESO depreciated versus the greenback for the third straight day on Monday as global oil prices inched higher and due to increased demand for the dollar as the economy gradually reopens.

The local unit closed at P49.24 per dollar on Monday, shedding four centavos from its P49.20 finish on Friday, based on data from the Bankers Association of the Philippines.

Monday’s close was the peso’s weakest since the P49.25-per-dollar finish seen on July 27, 2020.

The peso opened Monday’s session at P49.10, which was also its intraday best. Meanwhile, its weakest showing was at P49.325 versus the greenback.

Dollars traded increased to $1.073 billion on Tuesday from $956 million on Friday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the peso’s weakness to demand for the dollar as oil prices continued to rise. He noted that higher oil prices could also increase the country’s import bill and affect the currency.

Reuters reported that Brent crude rose by 15 cents or 0.2% to $76.32 by 0558 GMT on Monday. This came after uncertainties regarding major oil exporter countries’ production increase in the months ahead.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) on Friday supported a proposal to increase production by about 2 million barrels per day (bpd) from August to December and to extend the remaining output cuts to the end of 2022. However, the group was unable to reach a final agreement due to objections from the United Arab Emirates (UAE).

Decisions in OPEC+ must be unanimous. OPEC+ ministers were set to resume talks on Monday.

The spat erupted at a sensitive time for the oil market and could delay plans to pump more oil through to the end of the year to cool global oil prices that have soared to 2-1/2-year highs.

Consuming nations want more crude to prevent high prices derailing a global recovery from the COVID-19 pandemic.

Prince Abdulaziz bin Salman, energy minister of Saudi Arabia, the biggest oil exporter in OPEC, called on Sunday for “compromise and rationality” to secure a deal.

The UAE said it supported releasing more oil but not extending remaining cuts beyond April 2022 without an agreement to revise its own output baseline —the level from which production cuts are calculated.

The UAE, which has invested billions of dollars to lift capacity, says its baseline was set too low when OPEC+ originally forged their pact to limit supplies.

Responding to oil COVID demand destruction, OPEC+ agreed last year to cut output by almost 10 million bpd from May 2020, with plans to phase out the curbs by the end of April 2022. Cuts now stand at about 5.8 million bpd.

Meanwhile, a trader said the peso depreciated due to demand for the dollar as the coronavirus situation in the country improves, which could result in more imports as businesses reopen or expand their operating capacity.

Infections rose by 5,392 on Monday, bringing the country’s tally to 1.441 million, based on data from the Department of Health.

For Tuesday, Mr. Ricafort gave a forecast range of P49.10 to P49.30, while the trader expects the local unit to move within the P49.15 to P49.25 band against the dollar. — L.W.T. Noble with Reuters

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