Petroleum products prices are likely to continue their upward revision in the coming months in line with global market of crude oil which is being forecasted to go up by $55 to $60 per barrel in 2017 and next year by World Bank.
The oil prices are hovering around $49 to $52 per barrel currently in the international crude oil market.
Accordingly, the prices of petroleum products are expected to go up by Rs 5 to 10 per liter on various petroleum products till 2018 in Pakistan.
However, the government may decide to absorb the price hike of petroleum products through adjustment in taxes as the months to come are very crucial in terms of political and economic scenario in the country. The rise in petroleum product prices translates into inflation on various products including the financial nightmare of circular debt.
It will also impact on overall import bill of the country as the volume of oil products’ imports continue to surge due to high consumption and demand in transportation at local level.
Rising oil prices, supported by production cutbacks by Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC states, will allow markets to gradually rebalance, the report of The World Bank in its April Commodity Markets Outlook said.
However, these oil price forecasts are subject to downside risks should the rebound in the U.S. shale oil industry be greater than expected.
Recent Increase in Petroleum Products Prices
In December 2016, the government announced Rs 2 and Rs 2.70 per liter increase in prices of petrol and high speed diesel, respectively – this is the first increase since April 2016.
From mid of January to 1st March 2017, the government has increased petrol and high speed diesel prices on four occasions, cumulatively by Rs 6.7 per liter and Rs 6.8 per liter, respectively.
Furthermore, price of CNG has also gone up by Rs 1.7 per kg during Jan-Feb 2017, following the deregulation of CNG sector in December 2016.
Savings from Low Oil Products Prices
The present government has been lucky for having a period which was seen stability in oil prices in international market. Hence, in a span of three years – i.e. from Q1-FY15 to Q1-FY17 – the country saved a cumulative amount of US$ 7.3 billion, according to State Bank of Pakistan (SBP).
The saving of foreign exchange has given room the government to stabilize its reserves in comfortable position. Also, the government passed on the impact of lower petroleum products to the local market which witnessed stability in inflation especially on food prices.
Unfortunately, the government failed to resolve the issue of circular-debt which has piled up to Rs 360 billion, hampering the production cycle of power producing companies.