How can Pakistan benefit from crude oil historic drop?

• The government has a huge margin to reduce oil prices rapidly, however it is up to the government of what strategy it adopts.
• The price of a barrel of benchmark U.S. oil plunged below $0 a barrel on Monday for the first time in history.

The historic drop in oil prices has become the hottest topic in the business world with experts analyzing the impact of the situation.

Pakistan being an oil importer with a major share of its import bill generated from crude purchase can benefit from this situation said economic analyst Farrukh Saleem, while talking to local media.

“The last shipment of crude oil that Pakistan has received was quoted at $16 per barrel, which translates that the government of Pakistan is getting oil at Rs16-17 per liter, whereas the consumer is purchasing oil at Rs96 per liter, so one can see that there is a huge difference,” said Naseem.

The analyst was of the view that the government has a huge margin to reduce oil prices rapidly, however it is up to the government of what strategy it adopts.

“What we are learning is that the IMF (International Monetary Fund) is recommending the government to increase petroleum levy further, and keep 80 to 90 percent of the benefit of oil plunge for itself and pass on the remaining 10-20pc to the public,” he said.

He said that Pakistan imports $15-$16 billion worth of oil annually and in the current scenario the country can save up to $8-$9bn.

The economist was of the view that if the government passes 50 to 60pc of the benefit of the drop in oil rates to the public, it will generate an economic stimulus of Rs300-Rs400bn. He further said that the government also has the opportunity to slash electricity rates, petroleum rates, and interest rates as well, which can boost the economy further.

“It is a golden opportunity for Prime Minister Imran Khan if its benefits are passed on to the public then I believe that it could be a vital tool to stabilize the economy,” he added.

The price of a barrel of benchmark U.S. oil plunged below $0 a barrel on Monday for the first time in history, a troubling sign of an unprecedented global energy glut as the coronavirus pandemic halts travel and curbs economic activity.

The development comes after the supply of fuel has been far above demand since the coronavirus forced billions of people to stop traveling. Because of oversupply, storage tanks for WTI are becoming so full it is difficult to find space. The U.S. Energy Information Administration said last week that storage at Cushing, Oklahoma, the heart of the U.S. pipeline network, was about 72% full as of April 10.