Research Analyst
Apr 30 - May 6, 2012

Oil prices are always debatable and remain an important variable in determining the economic activity of any country. The size of oil prices increase depends on the share of the cost of oil in overall GDP, the degree of dependence on oil, consumption of oil domestically, and dependence on alternative sources of fuel.

The time of cheap availability of all kinds of fuel has gone because of fast increase in population, which ultimately increases the demand for energy. The price of fuel has a tendency to increase further till the demand growth is curbed and new technologies are introduced which reduce dependency on oil.

In Pakistan, Oil and Gas Regulatory Authority (OGRA) gives various justifications of raising oil tariffs.

Huge rise in oil price shifted the burden to the consumers as government is already running severe losses and equally shifted this burden to households.


HOBC 135.81
Premium 103.36
High Speed Diesel 107
Light Speed Diesel 98.74
Kerosene Oil 99.95

Also, consumption of kerosene oil, diesel oil and petroleum products at household level also increase. In recent months, the price of oil has raised sharply and with it, gasoline, diesel, and fuel oil prices also increase.

The impact of these oil price increases is very strong as it flows through the country's economy. Firstly, its impact on production costs results in a reduction on the overall demand for goods and services in the economy. Secondly, its impact on transport costs is changing distribution systems and the ability of existing logistics chains to serve the markets. This second impact affects not only the hinterland and distribution systems of major markets, but also the relative competitiveness of the modes that serve those markets.

For the very first time in the history of Pakistan, petroleum prices have crossed the Rs100 per litre. All three fuels - petrol, diesel and kerosene oil - cost over Rs100 per litre.

Price of CNG has also been increased by up to Rs11.55 per kilo. With a Rs8.02 rise, per litre petrol price has jumped from Rs97.66 to Rs103.36, as per a notification.

Per litre price of high-speed diesel was increased by Rs4.70 from Rs103.46 to Rs107 while the price of kerosene oil was increased by Rs5.29 from Rs96.40 to Rs99.95 per litre. The price of high octane blending component has been increased from the present Rs126.87 to Rs135.81 a rise of Rs8.94.

Furthermore, the prices of petroleum products are expected to go down by Rs3.75 per litre from next month, as the crude oil price in the global market witnessed a reduction of $3 per barrel. Since the independence, Pakistan's economy and its transportation system have become increasingly dependent on oil both in terms of its production of goods and services, and their distribution from production centers to market consumption centers. Oil drives a large part of the costs of the production of agricultural, manufacturing, and service industries in the country.

After the increase of prices in petroleum products in Pakistan, the transporters have demanded the government to increase the fares in April 2012.


Global energy use is estimated to grow by 50 per cent between 2005 and 2030, while oil prices will also be doubled in 2030. The IEA forecasts oil at $120 a barrel in 2030, up from last year's forecast of $62. The predictions come after crude oil prices touched a peak of $147.27 a barrel in mid-July before diving 56 per cent to trade around $65.

It is also estimated that the spending on oil as a share of global economic output will rise to five per cent over the period, compared to four per cent last year. The only time the world has ever spent so much of its income on oil was in the early 1980s, when it exceeded six per cent.


Jan 111.76
Feb 117.48
March 122.97
April 118.50

The IEA cut its forecast for global oil demand growth to one per cent a year on average over the next two decades. It now sees demand growing from 85 million barrels per day last year to 106 million barrels a day in 2030. That compares with last year's forecast, when the IEA saw global oil demand reaching 116 million barrels a day by 2030. Higher prices, slower economic growth and government policies over the last year have helped cool demand in the developed world.

Nearly all the growth in demand for oil over the period will come from China, India, and the Middle East. Demand for all forms of energy is forecast to grow 1.6 per cent a year over the period to around 17 billion tons of oil equivalent a year, with half the new demand coming from just two countries: China and India. Last year, the IEA forecast energy demand to grow 1.8 per cent annually over the period.

Despite the lowered growth forecast, the IEA lifted its estimate of the investment in energy infrastructure needed to meet the rising global demand for energy by 2030. The world needs to invest $26 trillion over the period, over $4 trillion more than last year's forecast.


Oil import to Pakistan is increasing with fast speed, and it has estimated that the import of oil would increase during next financial years. From the review of historic oil prices data, it is clear that there is much uncertainty about how oil prices may change in the future. Movements in oil prices have complicated the tasks of policymakers and business leaders over the past decades.