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.

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