After a record gain of more than 78 percent in 2009, the international oil prices (WTI) grew by only 14 percent in 2010, less than average annual gain of 21 percent in the last decade, analysts said. They said that like other commodities, uncertainty on global economic outlook also affected oil prices, which moved in a broad band of 65 dollar per barrel to 91 dollar per barrel in 2010.
As far as local oil market is concerned, retail prices of regulated products increased by only 11-13 percent. "This is primarily due to the fact that the impact of international oil prices on local oil products comes with one month time lag and that is why the price hike in international markets will be reflected in local prices next year in January 2011," Farhan Mahmood, senior analyst at Topline Securities said.
He said though oil prices remained volatile during 2010 amid global financial woes and turmoil in currency markets, average WTI crude oil prices stood at 79 dollar per barrel as compared to 62 dollar a barrel average price during 2009, up 27 percent.
"During 2010, we saw crude oil prices (WTI) dropping to lowest level of 64.5 dollar per barrel on closing basis on May 25, 2010 while touched its peak level of 91 dollar per barrel on December 23, 2010," he observed.
Moreover, Arab light crude oil price which is benchmark crude for local E&P firms, its price increased by 18 percent in 2010, more than the rise of WTI crude oil price. This is primarily due to higher demand from China and India, together which contribute more than 45 percent of total Asia Pacific crude oil demand, he said. Currently Arab light crude is trading at premium of 1dollar per barrel on WTI crude versus - year average discount of 3 dollar per barrel, he added.
Two major oil products (petrol and diesel) which constitute 85 percent of total regulated oil products, their local pump prices rose by 11-13 percent each. Thus, diesel (HSD) which historically remained lower than gasoline until 2008, it remained Rs 5 per liter costlier than gasoline in 2010 as government imposed higher tax on diesel also. On the other hand, to discourage CNG for transportation due to rising gas shortage, year end price of CNG grew by 14 percent from Rs 49 per kg to Rs 55 in 2010.
Farhan said that the government has already initiated the de-regulation of local oil product prices by which government changed pricing structure for refineries. "We might see frequent changes in local oil pricing mechanism in 2011 like the abolition of IFEM (inland Freight Margin)," he said.
Besides making supply chain more efficient, the government's other motive is to reduce oil prices. And that is why in the last monthly oil price notification, government slashed margins of refineries and OMCs to avoid price hike at local pumps. "We believe that government eventually will have to increase pump prices in January 2011 as average crude oil price has increased by $7bbl in December 2010, equivalent to Rs 3-4 per liter," he added.
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