Report projects up to Rs41 cut in oil prices

Drop in global market, hefty rupee recovery make imports cheaper

KARACHI:

The government is expected to make a massive reduction of up to Rs41 per litre in petroleum product prices for the second fortnight of October as a sharp drop in the global oil market and a significant recovery of Pakistani rupee have made imports cheaper.

The projection, if comes true, will slow down inflation to 27.5% in October compared to the four-month high reading of 31.4% in September.

In a brief report titled “Pakistan economy: big relief expected in petrol prices”, AHL Research said international oil prices had declined significantly over the past one week amid demand concerns, stronger US dollar, inflationary pressure and increasing supplies.

In addition, Russia has surprisingly lifted the ban on export of diesel, which will create a supply glut for the premium product. This may spark a price war in the international market and benefit oil importing countries like Pakistan.

The research house said that the price of Arab Light crude, which Pakistan imports from the Middle East, fell by 9.1%, or $8.9 per barrel, to $88.68 by October 5 compared to the average price of $97.58 for the September 18-29 period.

Similarly, the price of gasoline (petrol) plummeted by 15% to $84.3 per barrel in the international market compared with last fortnight’s average of $99.3. The international price of high-speed diesel (HSD) dipped by 10% to $110.6 per barrel compared with last fortnight’s average of $122.3.

On the other hand, Pakistani rupee appreciated 2.7% to Rs283.87/$ by Thursday compared with the previous fortnight’s average of Rs291.65/$.

Incorporating the drop alongside rupee appreciation and “assuming the international prices and currency remain at the same level for the next 10 days, the local petrol and diesel prices are expected to go down by Rs41 per litre and Rs19 per litre, respectively, in the next fortnightly price revision effective from October 16, 2023,” the research house anticipated.

The caretaker government has already reduced petrol price by Rs8 to Rs323.38 per litre with effect from October 1, 2023. It cut diesel price by Rs11 to Rs318.18 per litre.

The research house estimated that exchange rate adjustments in the last fortnightly prices of petrol and diesel were Rs11.9 and negative Rs2.8 per litre, respectively.

“Even assuming the same currency adjustment for MS (motor spirit/ petrol) and nil adjustment for HSD in the upcoming fortnightly prices, the MS and HSD prices are expected to drop by Rs28.6 and Rs19.3 per litre, respectively.”

Pakistan heavily relies on imported fuels to meet domestic demand. Estimates suggest that it meets around 70% of energy needs through imports while the remaining 30% is met through local field production.

The share of energy, including gas, stood at around 26% ($2.17 billion) in total imports of $8.23 billion in the first two months of current fiscal year, according to the Pakistan Bureau of Statistics (PBS).

In volumetric terms, however, the import of refined petroleum products such as petrol and diesel dipped by around 17% whereas crude oil imports dived by 38.5% in July and August 2023 compared to the same period of last year.

Pakistan’s demand for petroleum products hit a 44-month low at 1.06 million tons in September 2023 in the wake of a significant surge in prices over the past couple of months.

Besides, the availability of smuggled diesel, economic slowdown and a sharp drop in car sales also caused the decrease in demand.

Published in The Express Tribune, October 7^th, 2023.

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