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Oil prices: The Govt version

  1. The Squeeze
  2. Oil prices: The Govt Version

Prices in the international market are likely to fall during this quarter

Mar 06 - 12, 2000

Although it was neither confirmed nor denied by the Ministry of Petroleum, there are strong indications that the much anticipated increase in the prices, petroleum products may not take place on quarterly review basis during the current month. There appears no justification for any upward revision in March as there has been no change in the purchase contracts during this period making any rise in the international price inconsequential for Pakistani. On the other hand the prices may be reviewed downward in the next review due in June 2000 as the prices in the international market are likely to fall during this quarter.

The import bill of petroleum products has risen by over 585 million US dollars in July 99 to February 2000 as compared to the figures of the corresponding period last year. During the remaining 4 months it is estimated to cost an additional 337 million US dollars bringing total rise in yearly bill to 922 million dollars. It has caused a major upset, government plans to contain trade deficit and improve balance of payment position. What is more worrying is the fact that besides 86.8 per cent rise in the value of oil, its volume has also recorded an increase of about 17.2 per cent during this period despite government efforts to discourage use of petrol and popularise use of gas as is indicated from the following comparative table.




Quantity(Mln tonnes)


July-98, Feb-98 (Actual)



March, June-99 (Actual)





July-99, Feb-2000 (Actual)



March, June-2000 (Estimated)



12,271 1976

The other conclusions drawn in this report are based on the written replies of the Ministry of Petroleum and Natural Resources to some of the questions posed by the PAGE. Following are the questions and their answers.

Q. What is the net increase in the import bill of petroleum products during the first 8 months (July, 99-Feb, 2000) of the current financial year in comparison to last year.

A. The net increase in the import bill of petroleum products during the first 8 months (July 99-February 2000) of the current financial year in comparison to the corresponding period of last year has been US$585 million.

Q. At what rates we are buying our oil requirements and from which country? When the present contracts of oil purchases are expiring?

A. Prices of white/black oil products are market related and the premiums over the mean of Arab Gulf market quotations are negotiated with the terms suppliers every six months while MTBE prices are negotiated over the mean of Singapore market quotations. The existing import arrangements of oil products are as under:

• 75% of HSD & SKO 25% of HSFO is imported from Kuwait Petroleum Corporation (KPC) of Kuwait under a term contract.

• 50% of total Fuel Oil requirements is imported from Bakri Trading Company of Saudi Arabia under a term contract.

• 100% of MTBE is imported from Sabic Marketing Limited of Saudi Arabia under a term contract.

• The remaining products are arranged through quarterly spot tenders.

• The present contracts with Kuwait Petroleum Corporation and Bakri Trading Company would expire in December, 2000 while the contract with Sabic Marketing Limited would expire in June 2001.

Q. What additional cost is expected during the remaining four months?

A. The import bill for March June, 2000 is estimated at US$ 794 million against $457 million for corresponding period of last year showing a net increase of $337 million.

Q. Do you intend to further increase price of Petroleum products in March 2000?

A. As per approved mechanism the consumer price of petroleum products are reviewed on quarterly basis and are adjusted upward-downward with the increase or decrease in the prices of the products in international market. Based on this principle the last revision took place on 11.12.99. The price of furnace oil, however, is reviewed on monthly basis on the same principle. Last revision of furnace oil price was carried out on 15.2.2000.

Q. Indications are that prices may come down in the international market at the time of OPEC meeting scheduled for the current month. If so happens, will you reduce the prices for domestic market.

A. Based on the principles explained above the price of petroleum products will be reduced if there is a decrease in price in international market.