ISLAMABAD, October 27, 2023 (PAKONOMY): Prices of petroleum products in Pakistan are on the verge of a significant increase starting from November 1, 2023, as international oil prices surge in response to the ongoing conflict in the Middle East.
While neither Israel nor Gaza are oil producers, concerns are mounting that oil-rich countries in the region may be drawn into the conflict, leading to global oil price fluctuations.
Since October 16, 2023, international prices for petrol and high-speed diesel (HSD) have seen an upward trend, rising by $3 and $1 per barrel, respectively. However, it’s worth noting that there are still six days left before the Oil and Gas Regulatory Authority (OGRA) presents its recommendations, and the government officially announces the new prices for oil products, covering the period from November 1st to November 15th.
The recent reduction in petrol and HSD prices, announced on October 16, was meant to be in effect until the end of October. This decision contributed to a 1.7 percent reduction in the Sensitive Price Index (SPI) for the week ending October 19, compared to the week ending October 10. However, the weightage of petrol is only 1.4 percent and diesel just 0.0114 percent in the 51 items included in the calculation of the SPI.
In response to the substantial reduction in fuel prices, Interim Prime Minister Anwaar-ul-Haq Kakar issued a directive to the relevant federal and provincial authorities to activate a strict price control mechanism.
According to initial estimates from oil companies, Pakistani consumers should brace for an increase of Rs3 per liter in petrol prices and a Rs0.86 per liter increase in diesel prices. This projected rise is attributed to the ongoing conflict between Israel and Hamas, as well as exchange rate projections.
Notably, the Pakistani rupee has shown modest gains during this month, strengthening by approximately Rs 4, bringing the exchange rate to Rs 278 per US dollar as of October 16, compared to the first half of October when it averaged Rs 282 per US dollar.
The future direction of fuel prices in Pakistan will heavily depend on global market conditions and the exchange rate. As the conflict in the Middle East continues, the nation remains on alert for any unforeseen developments that may further affect prices.
On October 16, 2023, the interim government made a bold move by reducing the price of petrol by Rs 40 per liter, constituting a 12 percent reduction, and High-Speed Diesel by Rs 15 per liter, a 4.7 percent cut. The primary aim was to address declining demand, which was jeopardizing the government’s ability to meet its budgeted petroleum levy target of Rs 869 billion.
Furthermore, the demand for petroleum products in Pakistan plummeted to a 44-month low in September 2023, with petrol sales down 23 percent month-on-month, and High-Speed Diesel sales decreasing by 28 percent in the same period. These declines were the most significant since the COVID-19 lockdown in March 2020.
In conclusion, while the reduction in fuel prices brought temporary relief to consumers, the geopolitical uncertainties in the Middle East and global market conditions are poised to exert upward pressure on petroleum product prices, affecting consumers in Pakistan.