OPEC+ oil output rise may aid Pakistan

OPEC Plus' anticipated decision to raise oil production by 411,000 barrels per day starting in July could provide Pakistan with much-needed macroeconomic relief, carrying significant implications for the country's external account, inflation trajectory, and energy sector stability.

Sources close to the group indicate that this larger-than-expected output hike may be part of a broader strategy to restore as much as 2.2 million barrels per day to the market by November 2025. According to Ismail Iqbal Securities, the move is widely seen as an attempt—led particularly by Saudi Arabia—to regain lost market share and pressure high-cost producers out of the market.

The oil producers are expected to approve a hike more than three times the previously agreed 137,000 bpd at their upcoming meeting on June 1. If implemented, the decision is likely to exert downward pressure on already-struggling global crude oil prices. This would benefit oil-importing economies such as Pakistan, which continues to grapple with elevated energy costs and persistent trade and fiscal deficits.

Pakistan imports around 21 million tonnes of crude and petroleum products annually. In the first ten months of FY25, its energy import bill surged to $12.7 billion—nearly 26% of the total import bill. With Brent crude averaging around $74 per barrel so far this fiscal year, a drop in global prices following the OPEC+ hike could provide meaningful financial relief.

Insight Securities estimates that if Brent oil falls to $65 per barrel, Pakistan could save up to $1.8 billion on crude imports, with an additional $500 million in savings on RLNG imports. Pakistan imported $2.9 billion worth of RLNG during the same period, and because its price is indexed to global crude benchmarks, any decline in oil prices translates directly into reduced RLNG costs.

These savings would ease pressure on Pakistan's current account, improve foreign exchange reserves, and reduce the need for immediate external financing.

Lower oil prices would also aid Pakistan's fiscal goals. The government recently increased the petroleum development levy (PDL) by Rs18/litre to finance tariff differential subsidies under the TDS scheme. With a PDL target of Rs100/litre and a projected 10% increase in fuel consumption, authorities could generate up to Rs2 trillion in FY26—without raising retail prices if global oil prices fall.

In the domestic energy sector, a reduction in RLNG prices could lower electricity generation costs and reduce circular debt. This would alleviate financial strain on power utilities and cut the burden of energy subsidies. Gas distributors such as SNGP and SSGC could also benefit from improved cost recovery and liquidity, enabling timely payments to companies like OGDC and PPL.

Additionally, a decline below the $75/bbl base case assumed by OGRA could result in full cost recovery for gas utilities, enhancing their profitability.

The anticipated price drop could boost investor sentiment, particularly in the power, chemicals, and textile sectors, supporting the KSE-100 index. However, risks remain from potential new taxes in the upcoming budget and political resistance to high petroleum levies.