International oil prices slumped on Friday last by more than 10 percent to a 13-month low of under $80 a barrel, striking $75 in London, amidst a global equity meltdown that has triggered concerns of an impeding world-wide recession, and further signs of a slumping energy demand.
The International Energy Agency has slashed its estimate of world-wide 2008 demand growth to its lowest level since 1993. This has also prompted IEA to lower its growth forecast for 2009 by 190,000 barrels a day. US crude has plunged by $8.89 to settle at $77.70 a barrel, which is reportedly the lowest level since September 10, 2007, while London Brent crude settled down by $8.57 at $74.09 a barrel.
Earlier, all three major US stock indexes were sharply lower as jittery investors dumped stocks due to the fear that frozen credit markets would push the global economy into recession. Slump in demand in the United States and other developed economies had sent oil prices to a peak of over $147 a barrel in July, after increased consumption in emerging markets such as China had sent commodities on a six-year rally.
The IEA said that the looming recession and bank liquidity crisis is cutting demand for oil, and may prove to be a big setback to investment in new oilfields. The drop in oil prices has meanwhile prompted some Opec member states to call for a cut in production levels, and the cartel has agreed to hold an emergency meeting in Vienna on November 18 to discuss the impact of the global financial crisis on oil market.
However, the drop in global oil prices has bypassed Pakistan where surging oil prices, thanks largely to the mandatory fortnightly "revision" of petroleum prices has unleashed skyrocketing inflation. According to one estimate, the profit growth of three listed oil marketing companies (OMCs) ie Pakistan State Oil, Shell Pakistan Ltd and Attock Petroleum Limited has witnessed an increase of 206 percent in FY08, while their aggregate sales revenue stood at Rs 688 billion.
In 2007 the profit earned by OMCs had grown by 132 percent owing to volumetric growth, ex-refinery prices, product margins and above all, repayment of the price differential claims. Available data shows that the shares of PSO, Shell and APL have stood at 64 percent, 24 percent and 12 percent respectively in 2008. According to sources quoted in a news report, out of the total pending dues of Rs 65 billion owed to OMC, the government has cleared Rs 25 billion in price differential claims so that orders for oil could be placed to boost oil stocks in future.
Fuel prices in Pakistan since the early 1990s have registered a phenomenal increase, deeply eroding the competitiveness of our exports. In 2005 the World Bank had asked the government to assign the job of fixing petroleum prices to an independent body outside the oil ministry. It had also advised the government to rationalise the whole mechanism of oil price fixing, which gave the "appearance of a collusion" between the government and the oil industry. The Oil Marketing Advisory Committee (OCAC), a grouping comprising heads of nine oil marketing companies used to fix prices before Ogra was authorised to "vet" the prices, essentially determined by OCAC.
The pattern of oil price fixing in Pakistan has been unfair to the consumers in that each increase in international prices was promptly passed on to the consumers, while every decrease was not allowed to benefit the end consumers. (The clout wielded by the oil marketing companies and refineries can be gauged from the fact that they had threatened in 2006 to go on strike following a NAB proposal to recover Rs 4.5 billion from them.)
Fairplay demands that the popularly elected government of Prime Minister Yousuf Raza Gilani should order a decrease in petroleum prices for Pakistani consumers, in keeping with the price drop in international market. This will not only provide a measure of relief to the inflation-hit Pakistanis; but may also help curtail to some extent the cost of doing business in Pakistan, which has become a major stumbling block in attracting foreign investment. Let Pakistani consumers also benefit from the drop in oil price in international market.
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