Soaring oil prices
Oil prices may add half a billion dollars to the import bill
By AMANULLAH BASHAR
Oct 04 - 10, 1999
The international oil prices which shot up from $10.50 in June 1999 to the current level of $24 per barrel have impaired the government's calculations to pocket about Rs60 billion as development surcharge on POL products during the current financial year.
The development surcharge which comes to over 75 per cent of the POL prices in Pakistan's regulated market contributes a lion's share to the total revenue collections. The total revenue collection during the last fiscal was estimated at Rs308 billion during the last fiscal while the oil sector alone had contributed to the tune of about Rs80 billion. The surge in oil prices may have a dual effect on government resources this year. On one hand there is a possibility for a sharp decline in revenue collections due to shrinking price differential while a foreign exchange outflow to the tune of about half a billion dollars on the import of crude and other POL products on the other hand. Against this backdrop, the revenue collectors may find it more difficult to meet the revenue target of about Rs348 billion fixed for the current year.
According to an estimate, due to increase in international prices, the import of petroleum products is projected to soar by $422 million increasing the import bill to $1.8 billion during fiscal year 1999-2000. The projection for the current year is higher by 30.1 per cent against the estimated imports of crude oil and petroleum products during the year 1998-99.
The government has projected the trade deficit for the current fiscal year at $800 million with exports targeted at $9 billion and imports worth $9.8 billion during the current fiscal.
Trade deficit, however, recorded surging trends with total trade imbalance of $369 million in the first two months of current year.
Projected import of 37.99 million barrel of crude oil will cost $570 million while the import of petroleum products will cost $1.25 billion.
The member states of the Organization of Petroleum Exporting Countries (OPEC) are, however, happy over what they feel stability in oil prices and regaining control over the world oil prices by maintaining the oil production cut after the oil prices soared since November 1997 to more than $24 per barrel.
Oil price stability started since the historic OPEC agreement in March this year to reduce oil production by the member countries to the average of about two million barrels. The decision to cut down the oil production was reinforced by the organization's commitment last week to adhere to reduction till April 1, 2000. The OPEC with 77 per cent of the world's oil reserves has 42 per cent of global oil production. The OPEC cartel is determined to control the oil market by maintaining the current level of $24 per barrel. The trend of higher prices is likely to prevail as demand for oil rises during the winter months in the northern hemisphere. They argue that stockpiles are still high to consider any easing to the size or duration of a global 'output cut accord' while the average price for OPEC's basket was around $15.5 a barrel so far this year. The prices earlier dropped to the decade's lowest level of $6.5 a barrel.
OPEC heads of states, at a summit in Venezuela next year, are expected to sign a declaration on a new philosophy for the oil exporting cartel.
The heads of state will approve two documents. One is declaration including a new philosophy for OPEC and the other is an action plan for oil production.
It is reported that if there were no consensus in OPEC supporting the proposal for a price band mechanism then it would not be adopted at the summit. If the band policy is not supported by a consensus it will be changed. The stability of price is naturally the most important thing for OPEC countries.
Representatives of OPEC oil ministries will meet in Vienna in late November to plan the oil agenda for the summit which will also address environmental issues and bilateral relations. Another meeting of representatives of heads of states, foreign ministries, oil ministries plus OPEC secretary general will convene in Caracas in early December this year.
The summit will take place immediately after OPEC oil ministers meet in Caracas on March 27 to review production policy. Foreign ministers of OPEC will meet in parallel session on March 27.
Heads of states of non-OPEC oil exporters, Russia, Oman, Mexico, Norway and possibly Angola and Ecuador would be invited to the summit.
The OPEC member states are Saudi Arabia, Iraq, Iran, the UAE, Kuwait, Qatar, Libya, Nigeria, Algeria, Indonesia and Venezuela.
Experts in oil sector feel that the biggest oil find recently in Iran may bring a change in the current strategy of the oil exporting countries. the oil reserves of Iran have taken a quantum jump of around 26 billion barrels with the new find. After 3-4 years Iran will be able to produce between 300,000 and 400,000 barrels a day.