How Much Will an Oil Price Crash Benefit Pakistan?

Oil prices have fallen to their lowest level since 2002 as planned output cuts proved insufficient to counterbalance the COVID-19 related drop in demand.

Different oil-producing countries and OPEC had signed a historic agreement on Sunday to cut production by almost 9.7 million barrels a day, but it’s seemingly not enough.

The benchmark WTI fell down to $19.21 per barrel yesterday, which was the lowest level in 18 years. At the time of filing this report, Crude Oil WTI was trading at $19.89, up by $0.02 or 0.10% with Brent Oil trading at $27.96, up by 0.98% or $0.27.

A.A.H Soomro, managing director at Khadim Ali Shah Bukhari Securities, told ProPakistani that global oil markets are going through structural changes. “There is a twin shock on demand and supply side,” he said.

“The recent production cuts by OPEC+ and G20 are not enough in the short term. However, as demand increases, the markets will get balanced as Shale producers shut-in,” noted Soomro.

Soomro highlighted that Pakistan can reap a number of benefits if it leverages opportunity in a timely manner. The country can:

  • Improve its current account
  • Increase Foreign exchange reserves
  • Lower energy prices, helping businesses and consumers
  • Reduce RLNG rates
  • Further cut the interest rate
  • Set the stage for manufacturing-led growth

“However, amidst the lockdown, the impact will be less visible as the demand has fallen by a good 50-60%,” said Soomro. “Once we get closer to the natural economic trajectory – after a few months – we will start seeing signs of optimism among the masses,” he added.

Adnan Sami Sheikh, a senior market analyst said that Pakistan is a net importer of oil so the oil price crash will mean savings of around $5 billion

International crude oil analyst Osama Rizvi anticipates that oil prices might even go down to 10 – $14 range (WTI). and may hover from $17 to $25 for a longer period of time.

He noted that under such circumstances, Pakistan can take much advantage by utilizing and building up its oil storage capacity.


Ltd feature videos

Watch more at LTD

close
>