PETROLEUM PRICES

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
June 28 - July 04, 2010

Petroleum products are vital to many industries and have great importance for all countries around the world.

Throughout history, there have been many conflicts and wars for the sake of oil and minerals.

PER BARREL PETROLEUM PRICES

YEARS US$
2005 50.64
2006 61.08
2007 69.08
2008 94.45
2009 61.06
2010 76.15

Today, 80 per cent of energy consumed by humankind depends on the petroleum's derivatives. Currently, it is estimated by fuel companies, fuel reserves will start diminishing by 2015 and will peter out until 2070's.

In Pakistan, prices of petroleum products behave eerily and move in accordance with international market's dynamics, though most of time arbitrarily. Low prices of crude oil, for example, rarely reflect in the domestic oil prices.

Pakistan's average crude oil production during July-March 2009?10 stood at 65,246 barrels per day as against 66,531 barrels per day during the corresponding period of last year, showing a decrease of 1.9 per cent.

POL PRODUCTS

The petroleum products energy supplies during July-March 2009?10 increased to 16.3 million tones from 14.2 million tonnes in the same period last year witnessing a 14.6 per cent growth. Due to this, the overall consumption of petroleum products exhibits an increase of 8.1 per cent during July-March 2009?10 against the same period last year. The power, industry and transport sectors consumed the higher quantity of petroleum products during the period under consideration. Improvement of domestic demand led an increase in the consumption of petroleum products by transport and industry.

CONSUMPTION OF PETROLEUM PRODUCTS (JULY-MARCH)

(In 000 tones)

YEAR HOUSE HOLDS INDUSTRY AGRICULTURE TRANSPORT POWER OTHER GOVT. SECTORS TOTAL
2008-09 75 718 50 6309 5497 245 12892
2009-10 68 750 44 6580 6271 223 13,937

OIL PRICES

Ogra has been mandated to fix prices of petroleum products in March 2006. Furthermore, the consumer prices have been notified by OGRA on monthly basis from February 2009.

The federal government has fixed petroleum levy (PL) from July 2009. The PL rates on various products are as follows: HSD Rs8 per liter, MS Rs10 per liter, HOBC Rs14 per liter, KERO Rs6 per liter and LDO Rs3 per liter.

The local prices have been linked with the developments in the international oil market. Accordingly, local ex-depot prices vary in line with the international prices. Moreover, cost of gas is linked with international prices of crude/fuel oil per Gas Pricing Agreements (GPAs) executed between the gas producer companies and government of Pakistan.

PRICES OF OIL PRODUCTS IN PAK RUPEES

PRODUCTS JP-1 JP-4 JP-8 PREMIUM MOTOR GASOLINE HOBC LIGHT DIESEL OIL
May-2010 58.46 55.54 61.24 75.08 89.19 65.76
June-2010 55.36 52.63 58.21 69.04 82.04 62.61

The Ministry of Petroleum and Natural Resources planned to make the oil refineries and oil marketing companies (OMCs) richer by placing an upper cap on import price for locally produced petrol sale price while deregulating its ex-refinery price at the cost of consumers in new oil pricing mechanism.

It may be mentioned that Pakistan imports petrol in minor volume just to meet the deficit product and meets its requirements from the local petrol. Taking import price as sale price for locally produced petrol will only benefit OMCs and refineries.

The Ministry of Petroleum has accepted that ex-refinery price of petrol would increase in the range of Rs 3-4 per liter in respect of refineries including NRL, PRL and ARL. OMCs are already seeking price differential claims (PDCs) from the Ministry of Petroleum since imports are more expensive than refinery price.

FUEL AFFECTS ON FOOD PRICES

High fuel prices contribute to the increase in prices of most agricultural crops in the country. The high fuel costs have also led to a doubling of freight rates, contributing to further increases in food import bills. The rising cost of fuel affects the cost of fertiliser and electricity and consequently shows up in the price of basic foods such as grains and wheat. Increases in food prices also reflect systemic problems in the agricultural sector.

CONCLUSION

The government has failed to restrict the oil companies from chalking up unjustified profits. Currently, the government of Pakistan is committed to resolve the circular debt issue. The government should also review petroleum policy.