MS petrol has long been a big gossip point for everyone since it nearly doubled in rates two years ago. Last week’s budget has provided a small hint that petrol rates may touch Rs. 350 per liter next fiscal year.
A former Power Division official who now works in the private sector told ProPakistani that a phase-wise Rs. 20 per liter hike in petroleum levy on MS, including the re-introduction of a 5 percent sales tax and grim forecasts for international market rates will most likely push domestic rates to above Rs. 300 to as high as Rs. 350 per liter.
The current petrol price is Rs. 258.16/liter. Applying a 5% sales tax raises it to Rs. 271.07. With a 12-15% inflation increase, the price becomes Rs. 311-314. If crude oil prices surge to $90-100 per barrel, additional import costs could push the price to around Rs. 330. Adding the phased-in Rs. 20 levy (Rs. 5 per fortnight at least), makes a petrol price of Rs. 350/liter excruciatingly achievable.
“Given the real trends we see today, we don’t see off-peak oil demand in the coming months. Demand will increase and so will the prices. The geopolitical risk premium will spike by minimum $5-10 per barrel due to conflicts in the Red Sea, and Middle Eastern markets slowing OPEC+ supply due to the situation in Palestine. Crude oil could hit at least $90 per barrel,” he said.
Last week, the Shehbaz Sharif-led coalition proposed in the Finance Bill 2024 to increase the maximum petroleum levy on petrol and high-speed diesel to Rs. 80 per liter. International crude prices have remained steady at $81-82 per barrel in the meantime.
“When Brent first went above $90 per barrel in 2023, petrol in Pakistan was being sold at a rate of Rs. 323 per liter. So inflation, rise in demand, and the government’s fresh budgetary proposals for generating more revenue from the petroleum industry will likely bring such rates back in the market,” he added.
It bears mentioning that the State Bank of Pakistan (SBP) in its last Monetary Policy meeting on June 10 viewed some upside risks to the near-term inflation associated with the 2024-25 budgetary measures and uncertainty regarding future energy price adjustments. “The MPC foresees a risk of inflation to rise significantly in July 2024 from current levels, before trending down gradually during FY25,” the bank said in a statement last week.
Meanwhile, the World Bank in April 2024 said oil could rise above $100 per barrel and blow apart global inflation. It warned that this could happen if the alarming situation in the Middle East worsened any further. “A moderate conflict-related supply disruption could raise the average Brent price this year to $92 a barrel. A more severe disruption could see oil prices surpass $100 a barrel, raising global inflation in 2024 by nearly one percentage point,” it said.
A few sane heads have reduced their expectations regarding the extent and speed of SBP interest rate cuts this year, due to inflation expected to be more persistent than anticipated.
In this analyst’s view, barring any significant global geopolitical disturbances, the outlook for oil markets in the coming months remains bleak. From the standpoint of crude market prices, the new fiscal year for Pakistan is likely to mirror the previous year’s trends.
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The writer himself so unsure he use question mark on his own heading making his point less likely to compel. The article completely lacks the political dynamics as well as economics. 350 petrol price will further elevate the inflation and policy rate to unsustainable levels.