|
High
prices of oil a threat to developing economies
The bill of oil imports is expected to reach $6.5 billion against
$4.6 billion in the last fiscal year, which is the main reason behind the
all-time high trade deficit
By Shazia Mehmood Khan
International
oil prices soared to another record high above 90 dollars per barrel due
to global supply jitters and tensions between Turkey and Iraq. New
York’s main futures contract, light sweet crude for delivery in
November, touched 90.07 dollars per barrel in the early afternoon deals.
The international oil market is also fretting over the falling US dollar.
A weak greenback makes commodities priced in the US unit cheaper for
buyers using stronger currencies and therefore boosts crude demand.
Increasing demands for
energy, particularly from China and India, highlight a growing supply
problem. The global supply of oil is not going to run out, but producers
will likely struggle to meet the increased demand. In fact, even with a
slowdown in demand, prices may remain high over the medium term.
The government of
Pakistan is reported to have collected the all-time high revenue of Rs157
billion on oil and gas in the last fiscal year. This is a hefty amount
that constitutes a massive chunk of the total tax collection of Rs890
billion.
The government suffered
the highest ever $9.427 billion trade deficit during the first 10 months
(July 2005-April 2006) of the current fiscal against a deficit of $4.868
billion in the same period last year, a rise of 93.65 per cent. The
petroleum ministry says that this year, the bill of oil imports was
expected to reach $6.5 billion against $4.6 billion in the last fiscal,
which is the main reason behind the all-time high trade deficit.
According to OCAC
(1QFY08), oil consumption in Pakistan has been on the rise again. The oil
consumption growth in the country stood at 9.3 per cent YoY during 1QFY08.
Total volumes (ex. non-energy) settled at 4.58 million tons during
the period against 4.19 million tons in the same period last year.
Mogas demand has soared
on the back of minimised Iranian smuggled oil products in the last 2
months of the quarter, greater hassle with increased waiting time for CNG
filling (above 950 vehicles per CNG station, and rising) and increased
variation in LPG prices.
In addition, Keros
utilisation has also been on the rise due to gas shortages in the remote
areas of the country and its 100 per cent usage in JP-8 production. JP-1
also showed a decline of 7.8 per cent YoY due to shortage of the product
and erratic supply to the major airports of the country. HSDs consumption
picked up during the last 2 months of 1QFY08 amid increased transportation
activities. LDO has shown negative YoY growth of 12.1 per cent YoY due to
lower agricultural activities observed during the period. HOBC revealed a
growth of 6 per cent due to increased utilisation of the premier petrol in
the high-end vehicles during the period.
Multidimensional reasons
(a) Dollar weakness: The
weakening value of the US dollar against other major currencies has
multiplier effects and also reduced the purchasing power of OPEC’s
revenues and increased the purchasing power of some non-dollar consumers.
OPEC oil ministers have noted that although prices are rising to record
nominal levels, inflation and the dollar have softened the impact.
(b) Demand: While
previous price spikes have been triggered by supply disruptions, demand
from top consumers, the United States and China is a main driver of the
current rally. Global demand growth has slowed after a surge in 2004 but
is still rising and higher prices have so far had a very limited effect on
economic growth. International analysts say the world is coping well with
high nominal prices because, adjusted for exchange rates and inflation,
they are lower than during previous price spikes and some economies have
become less energy intensive.
(c) Funds: Investment
flows from pension and hedge funds into commodities including oil, have
resumed after a hiatus early in the year due to concerns about the global
economy. Speculative trading in energy markets has boomed in recent years
as investors sought to beat returns in other markets such as equities and
bonds.
(c) OPEC supply
restraint: The Organisation of the Petroleum Exporting Countries (OPEC),
owner of more than a third of the world’s oil, started to reduce oil
output in late 2006 to stem a fall in prices. Fewer OPEC barrels entering
the market helped propel this year’s rally and consumer nations led by
the International Energy Agency for months urged OPEC to pump more oil. At
a meeting last month, OPEC agreed to increase oil output by 500,000
barrels per day from Nov 1.
(d) Nigeria: Supply of
crude oil from Nigeria, the world’s eighth-largest oil exporter, has
been cut since February 2006 because of militant attacks on the
country’s oil industry. Oil companies have detailed about 547,000 bpd of
shut Nigerian production due to militant attacks and sabotage.
(e) Iran: Oil consumers
are concerned about the supply disruption from Iran, the world’s
fourth-biggest exporter, which is locked in a dispute with the West over
its nuclear programme. Western governments suspect Iran is using its
civilian nuclear programme as a cover to develop nuclear weapons. Iran
denies this, saying it wants nuclear power to make electricity.
(f) Iraq: Iraq is
struggling to get its oil industry back on its feet after decades of wars,
sanctions and underinvestment. Exports of Kirkuk crude from the
country’s north are sporadic as sabotage and technical problems have
mostly idled the pipeline since the US-led invasion of Iraq in March 2003,
preventing exports returning to the pre-invasion rate.
(f) Refinery
bottlenecks: Refiners in the United States, the world’s top gas guzzler,
struggled with unexpected outages which drained inventories ahead of the
summer, when motor fuel demand peaks. In the latest weekly figures from
the US government, issued on October 17.
Conclusion
The regulatory authority
did not increase the petroleum products for the next 15 days in the
country. But it is feared that current surge in international oil markets
may force the government to take appropriate actions.
Type
Black Oil (FO & LDO)
Consumption
Recorded growth of 9.9
per cent YoY with total volumes
of 1.84 million tons in 1QFY08 against 2.02 million tons last year due to
the greater Furnace Oil demand in the country. Black Oil rising by 10.4
per cent Year-on-Year in 1QFY08 (especially growth in FO consumption in
Sept-07) Black Oil contributed 48 per cent to the total volume increase
during 1QFY08 whereas
Type
White Oil (Mogas, HSD,
HOBC, Kero and JP)
Consumption
White Oil (Mogas, HSD,
HOBC, Kero and JP), also witnessed increased volume growth of 8.8 per cent
with 2.55 million tons of volume against 2.34 million tons last year,
Unlike the entire year of FY07. Mogas (26.3 per cent YoY) was leading the
growth path in 1QFY08 of the overall POL consumption growth. Mogas
proportion to the total volume increase was 20 per cent YoY.
|
