Popular uprising in the Middle East and North Africa region and turbulence in currency markets has kept crude oil prices on the higher side in the outgoing financial year.
WTI and Arab crude - benchmark for Pakistan - oil prices have surged by 22% and 52%, respectively, during fiscal 2011 with almost one week remaining, according to a Topline Securities research note.
The rise in the international oil price unleashed the prices to head upwards in the country, which needed government’s intervention to keep domestic oil prices from spiraling out of control.
Despite all the measures, local oil products prices grew by 28 to 60 per cent with diesel and petrol prices touching their all time high in May.
The government initially abolished incidental and storage charges along with fixing oil marketing companies’ margins in rupee terms. The development adversely affected the profitability margins of refineries and oil marketing companies, adds the note.
Furthermore, the government also had to take a hit on petroleum levy – a duty collected by the government – which was slashed to bear minimum on various petroleum products. In particular, petroleum levy on diesel was gradually slashed to Rs0.55 per litre from Rs8 per litre.
With little room left, the government eventually had to pass on the price hike to the final consumers in May, swelling prices to new peaks.
Going forward, global oil market is expected to display high volatility on account of divergent views regarding the global economic health, says the note. Based on prevalent trends oil prices are expected to remain firm around the levels of $96 per barrel.
Published in The Express Tribune, June 25th, 2011.
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