Govt approves weekly oil price proposals
The government has approved a set of proposals for oil price review on a weekly basis aimed at bailing out the oil industry from the risk of high premiums, insurance costs and freight charges.
A decision has been taken following a warning from the Petroleum Division about the looming oil crisis due to tensions in the Gulf region, which have disrupted supplies.
Recently, the international oil market has remained highly volatile in the wake of Middle East conflict that has affected the shipping route through the Strait of Hormuz. This shipping channel is of critical strategic importance to the world energy market as 20% of global oil supplies pass through it with limited alternatives.
Even short-term disruptions can trigger supply delays, increased freight costs, high risk premiums and sharp price movements, particularly for import-dependent Asian markets having only a few short-term sourcing alternatives.
Pakistan's fuel supply remains significantly dependent on Gulf Arab-linked imports. During the first eight months of the current fiscal year, Pakistan imported 3.6 million metric tons (70%) of motor spirit (petrol) and one million metric tons (21%) of high-speed diesel (HSD) against domestic consumption of 5.2 million metric tons of petrol and 4.8 million metric tons of HSD. Any prolonged disruption poses serious risks to macroeconomic stability and domestic transportation & logistics. Sources told The Express Tribune that shifting to the weekly pricing mechanism would reduce the lag between the international benchmark crude movements and domestic price adjustments, limit speculative hoarding and help better align cash flows with import costs.
Under the new formula, the government is taking a five-day average price from Monday to Friday through the Gulf Arab Platts assessment for the respective product. The weighted average premium of PSO cargoes discharged or partially discharged with volumes available for sale in the coming week will be taken. In the absence of cargoes, the last available weighted average premium of PSO cargoes will be used.
In another measure, the weighted average of PSO import incidentals and customs duties on cargoes included in computation of the premium will also be taken to calculate prices.
The current PSO-based exchange rate adjustment mechanism will continue for price computation. Since PSO's exchange rate in case of HSD is not reflective of the market rate, therefore in case of other oil marketing companies' (OMCs) HSD imports, the weighted average of PSO's actual motor spirit exchange rate for the same period will serve as the benchmark for exchange loss computation.
The differential claims of other OMCs will be settled through the inland freight equalisation margin (IFEM). In case any other importing OMCs do not have cargo in the coming week for recovering the previous exchange rate differential, the OMCs may claim the adjustment through the IFEM.
It has been agreed that the Oil and Gas Regulatory Authority (Ogra) will submit an indicative price computation on every Friday for consideration and approval by the relevant committee.
Subject to the committee's decision, Ogra will re-compute prices based on the latest Platts inclusive of Friday's assessment along with the latest PSO pricing information. Any change in the petroleum levy and climate support levy will be notified by the Petroleum Division on the advice of the Finance Division before the publication of prices by Ogra every Friday.
The Economic Coordination Committee (ECC), through its decision dated November 18, 2022, has already allowed the differential of HSD premium paid by the importing OMCs higher than PSO to be considered by Ogra for adjustment through the IFEM.