Pakistan

Projected Drop in Fuel Prices Below Rs300 Amid Global Oil Rate Decline

ISLAMABAD: A substantial decrease in global oil prices and the appreciation of the rupee are expected to drive petrol and high-speed diesel (HSD) prices below Rs300 per liter in the upcoming review. The government’s objective is to collect approximately Rs869 billion in levies on petroleum products during the current fiscal year, as outlined in commitments to the International Monetary Fund (IMF). If this reduction proceeds, it would be the second consecutive decrease in petroleum prices after three consecutive fortnightly increases.

The anticipated reduction, up to Rs20 for HSD and Rs38 for petrol per liter, would mark a significant decrease in fuel prices, provided the caretaker government approves it. High-speed diesel currently carries a petroleum development levy of Rs50 per liter, compared to Rs60 for petrol. Between August 15 and September 15, petrol and HSD prices surged by Rs58.43 and Rs55.83 per liter, respectively, reaching historic highs of Rs331-333 per liter at retail.

Although the general sales tax on all petroleum products is presently zero, the government imposes a petroleum development levy of Rs60 per liter on petrol and Rs50 each on HSD, high-octane blending component, and 95 research octane number (RON) petrol. Since September 1, petrol and diesel prices have remained above Rs300 per liter. Alongside the rising cost of electricity, fuel has been a key driver of high consumer prices, contributing to a 31.4 percent inflation rate in September.

Sources have indicated that, based on current tax rates and other factors, the petrol price could decrease by Rs36-38 per liter due to a substantial 12 percent reduction in its international price from $99 per barrel to $87 and a 4 percent appreciation of the rupee against the US dollar. This suggests that the petrol price in the Middle East has dropped by $11.4 per barrel, while the rupee has appreciated by over Rs12 per dollar, from about Rs292 in late September to the current Rs280.

However, Pakistan State Oil (PSO) has experienced a slight increase in the premium paid to secure import cargoes, from $15 to $16.7 per barrel during the past fortnight. Accounting for these changes, the ex-refinery petrol price is expected to drop by over Rs38 per liter, resulting in an ex-depot price of around Rs286 per liter for the next fortnight (October 16 to 31). Petrol is primarily used in private transport, small vehicles, rickshaws, and two-wheelers, directly affecting the budgets of the middle and lower-middle classes.

On the other hand, the price of high-speed diesel could decrease by approximately Rs19-20 per liter if the government maintains the petroleum levy at Rs50 per liter. However, the Ministry of Finance may push for a Rs5 per liter increase in the levy to meet budget targets, resulting in a reduction of around Rs14-15 per liter.

In the global market, the price of high-speed diesel has also decreased by about $8 per barrel to $114 from $122 over the last two weeks. Considering the rupee’s appreciation and the consistent premium on import cargo, HSD’s cost and freight price is likely to decrease by Rs22 per liter, reducing the ex-depot price to about Rs296-98.

The transport sector heavily relies on HSD, which is considered highly inflationary due to its extensive use in heavy transport vehicles, trains, and agricultural engines, including trucks, buses, tractors, tube wells, and threshers. It contributes to the prices of vegetables and other food items. The government also imposes approximately Rs21-23 per liter in customs duty on petrol and HSD. These two key fuel products are significant revenue generators for the government, with monthly sales of about 700,000 to 800,000 tonnes, compared to a monthly demand of 10,000 tonnes for kerosene.

Published in Dawn, October 13th, 2023.

Syed Hassan Shah

Social activist and junior reporter at thepost e-newspaper.

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