PETROLEUM PRODUCTS PRICES

S.M.ABBAS ZAIDI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Feb
15 - 21, 2010

Domestic petroleum industry of Pakistan plays an important role in the economy and that role cannot be denied since the industry is a source of revenue for the government.

Pakistan's average daily production of crude oil in 2007-08 was 70,205 barrels. Total domestic crude oil production can only meet 18% of the total demand of petroleum products in the country. Obviously, the shortfall is offset by imports that imply huge expenditures of foreign exchange.

In Pakistan, the prices of petroleum products do not often reflect the global shift and they are decreased not in proportion to decrease in global prices. Instead, prices are sometimes subject to rise imprudently. The increase is applied equally to imported and domestic petroleum products.

The oil markets in the country are influenced by factors other than the demand-supply fundamentals.

PRICES OF OIL PRODUCTS IN PAKISTAN

PRODUCTS JP-1 JP-4 JP-8 PREMIUM MOTOR GASOLINE HOBC KEROSENE OIL LIGHT DIESEL OIL INTERNATIONAL MONTHLY OIL PRICES PER BARREL ($)
Mar-2009 31.22 32.58 37.07 57.66 72.08 51.87 48 45.78
Feb-2010 53.41 52.15 56.05 71.21 86.84 64.06 61.07 72.33

CONSUMPTION OF PETROLEUM PRODUCTS

During July-March 2008-09, the consumption of petroleum products by most of the sectors (other than the power sector and government sector) exhibited a negative growth over the same period last year. The consumption of petroleum products in the power sector increased marginally. Overall decline in consumption of petroleum products was due to slowdown in economic activities and abnormally high prices of POL products.

CONSUMPTION OF PETROLEUM PRODUCTS (000 tones)

YEAR HH CH.
(%)
IND. CH.
(%)
AGRI. CH.
(%)
TRAN CH.
(%)
POWER CH.
(%)
OTHER GOVT. CH.
(%)
TOTAL
2003-04 231 -18.4 1,493 -6.9 184 -6.6 8,464 4.7 2,740 -54.5 309 16.2 13,421
2004-05 193 -16.5 1,542 3.3 142 -22.8 9,025 6.6 3,452 26.0 317 2.6 14,671
2005-06 129 -33.2 1,682 9.1 82 -42.3 8,157 -9.6 4,219 22.2 359 13.2 14,627
2006-07 106 -17.8 1,596 -5.1 97 18.3 7,982 -2.1 6,741 59.8 . -9.5 16,847
2007-08 121 14.1 1,071 -32.9 109 12.7 9,384 17.6 7,084 5.1 311 -4.5 18,080
July-March
2007-08 82 . 861 . 87 . 6816 . 5255 . 243 . 13342
2008-09 75 -8 718 -17 50 -42 6307 -7 5497 5 245 1 12892
HH: HOUSEHOLDS, AGRI: AGRICULTURE, TRAN: TRANSPORT, CH%: CHANGE%, IND: INDUSTRY

INCREASE IN OIL PRICES

Recently, Oil and Gas Regulatory Authority (OGRA) announced price increase claiming it was unavoidable due to sudden upswing in the international prices of oil. In past seven months, oil prices have increased four times.

According to the notification issued by OGRA prices of petroleum products (POL) were increased by Rs.6.10 per liter to Rs.71.21 per liter, up by 9.37%. Price of high-speed diesel was increased to Rs.71.89 per liter from Rs.68.56 by 4.86%.

The price of light diesel oil was increased to Rs.61.07 from Rs.58.10 per liter by 5.11%. High octane blending component (HOBC) price was increased by 9.33% from Rs.79.43 to Rs86.84 per liter. Price of kerosene was up by 5.5% or Rs.3.32 to Rs.64.07 from Rs.60.75 per liter. Price of jet fuel was increased by 5-5.35%, JP-1 5.35%, JP-4 5.12%, and JP-8 by 5%.

Rise in prices based on import parity formula and approved by the federal government of Pakistan was effected from 1st February 2010. According to OGRA, this revision was necessary after the recent increase in Persian Gulf petroleum prices, as the cost of motor spirit had increased 9 percent, kerosene and high speed diesel 5 percent, furnace oil 4 percent, and crude prices 2 percent in the Persian Gulf market.

OGRA claimed rise was also because of adjustment of depreciation in exchange rate during January, of about 0.6 percent.

Public and transporters refused to accept the fresh hike in oil prices. Traders rejected the increase in oil prices saying it would push up the price of commodities causing further harm to their business. The transporters have also rejected the new petroleum prices.

The government will now earn 50 paisa to Re.1 per liter additional general sales tax while oil marketing companies and dealers will earn 20 to 30 paisa per liter profit on their products. Hence, their profit margins would increase in between 11.5% and 12%. Company's margin is 5%, the GST is 16%, and dealer's commission is 4%.

There will be further increase in inflation because of the current increase in oil prices, and cost of industrial production that are already in jeopardy due to power crisis will further decline.

Regular rise in oil prices have created social instability, inflationary pressure aggravating unemployment and worsening energy crisis.

CONCLUSION

The price set by OGRA for gasoline is Rs 71.21/liter. Oil companies are churning out profits. Government has failed to save the people from the greed of oil companies. The uncontrolled rise in oil prices in the country is fuelling inflation with commodities and other basic items costing us two to three times more now than a year ago.