Oil Marketing Companies and consumers are expecting another big hike in the pump price of Motor Spirit (MS) and High-Speed Diesel (HSD) this week, following a record-breaking plunge in the value of the Pakistani Rupee (PKR) against the US dollar last week.
The PKR has weakened against the greenback in the black market from 307/USD on 18 August to 320/USD today (28 August), raising further concerns about whether the pump price of petrol and diesel could go above 300 this Friday.
The rupee, which hit 304/dollar in the interbank market at 9:45 AM today, has had a nightmarish few weeks since the International Monetary Fund in July approved a new $3 billion bailout package for Pakistan.
Contrary to expectations post-disbursal, the local currency began a move down south, despite analyst expectations of a temporary rebound up to highs of 250-270, a situation that has drastically changed with the rupee all set to trade in the 300-320/USD range for the remainder of calendar year 2023.
While the PKR/USD trend has unsettled economic managers and stakeholders in the country, the slump has particularly made a devastating impact on the oil and gas sector.
On the condition of anonymity, a dealer with over a dozen pumping stations across Punjab told ProPakistani on Monday that with the exchange rate at 303-305/$, the pump price of petrol is unlikely to remain at 293/liter, particularly if the current exchange rate continued to linger.
He projected a cost of between Rs. 300/liter to Rs. 310/liter for MS, based on the expected open market PKR rate of 308/$, stressing that the black rate was about 314/$ to 320/$ at the time the cost of petrol was pegged at rates as high as 310/liter. Meanwhile, HSD is tipped to get a hike of up to Rs. 29.55 per liter, taking the new rate of diesel on 1 September to 320/liter.
The dealer pointed out that the caretaker government on 15 August had insisted that the petroleum prices in the international market had increased during the last fortnight and as a result, the consumer rates had to be revised upwards.
Pertinently, Brent and WTI cumulatively traded between the $81-87 range between 1st and 15th August. Now both grades have since slipped into the $78-85 range, so it would only be logical if the government hikes fuel rates based on last week’s PKR slump.
“Blaming it on international commodity prices instead of the IMF’s premium cap on PKR/USD trade would be a big mistake. Recent reports suggest that Kakar’s team could go for a covert subsidizing of energy items to offset public outcry against unnecessary counter-inflationary measures. In this way, it won’t decrease/increase fuel rates but divert the blowback through other sectors,” an analyst said in an emailed response.
He added that as per the current environment and expected consequences, the landing cost of both MS and HSD will see another big increase as long as the PKR continues to fall.
A rise in the dollar immediately raises the cost of petroleum goods. So, if the dollar rises in the forex market, it implies that, whatever the aftermath, the federal government will not maintain petrol rates within a price regime and opt for an increase.
Moreover, the implications of these price hikes, both recent and upcoming, could greatly influence the August inflation trend. If inflation exceeds expectations, the central bank may be forced to raise its key policy rate in its scheduled monetary policy review meeting on September 14.
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