KARACHI: Twin pressures to put OCAC in a fix: Oil price review
By Aamir Shafaat Khan
KARACHI, March 11: The Oil Companies Advisory Committee (OCAC) will be in a fix on March 15 price review meeting as on hand international oil prices continue to rise and on the other tremendous pressure is being built up against the increase.
The Mutahida Majlis-i-Amal (MMA), the main opposition party, has already announced a country-wide strike on April 2 to protest against the rise in prices of essential items because of heavy increase in domestic oil prices. It has placed banners in various parts of Karachi, showing its anger over the inflationary trend in price of wheat flour, sugar and milk. Its president, Qazi Hussain Ahmed had claimed on Thursday that the strike would be joined by all political parties and stakeholders, including traders, businessmen and transporters.
The strike call came at a time when the government has started recovering Rs40 billion loss, it has incurred during May 15 to December 15, 2004 period when it capped the prices despite rising trend in the global market. The target of PDL for the year 2004-2005 is Rs47 billion
Refinery operators and the OCAC are tight lipped over the prices of POL products for the next fortnight as the consumers are already fighting with their will in buying costlier essential commodities like milk, wheat flour, sugar, vegetables and pulses.
“I do not know how the government as well as the OCAC will handle the situation on March 15. Whether they will again decrease the PDL or increase it,” a market analyst said.
He said that domestic POL price hike is reaching an alarming proportion and a further increase will fuel the inflation in the country.
Manager Supply and Commercial, Pakistan Refinery Limited (PRL), Aftab Husain said that the product price of diesel has reached to $60 a barrel from $59 a barrel on March 5, 2005. It was $47 in February 2005 and $43.47 in January 2005.
He said the Light Arab Crude price has now touched $46.50 a barrel from $40 in February 2005 and it was $38 in January 2005. In January 2004, it was staying at $30.05 a barrel. He said that kerosene has touched $64 a barrel, while naphta prices are also flying high at $450 per ton.
He said that the current international prices were all time high as compared to 1990’s Arab Gulf War and last year’s Iraq War when the prices were high but not to the current extraordinary level.
For the first time the prices of US Bench Mark Crude (Western Taxes Intermediate) and Brent crude (a European Benchmark) are trading at the same rate of around $53 a barrel in world markets after a long time.
Aftab said that oil prices in world markets usually decline in March due to change in weather but this year it is not happening. It can be termed as an extraordinary phenomenon. He said that in the third quarter of 2005, the US was expected to start building up gasoline stocks to cater for the next driving season starting from May.
However, he did not give a clear picture whether local prices will be moved upward or downward in coming fortnights in the aftermath of meteoric jump in global oil prices.
“Local incidental impacts like cut in taxes and duties are unlikely to have any considerable impact on domestic prices until and unless international oil prices start bottoming out,” Aftab said adding that a major decline in international price can make a big impact on local prices.
He said that ex-refinery prices of petrol and diesel had also gone up in the last one year to Rs22-23 per litre from Rs17-18 a litre a year back due to increase in international oil prices.
Director, Jehangir Siddiqui Capital Market, Mohammad Sohail said that the oil price regulators have adopted a strange strategy from Dec 15, 2004 by raising the price in one fortnight and then maintaining it in the next price review. The government had frozen the POL price from May 15-December 15, 2004.
Keeping in view this strategy, it appears that the government is expected to keep the price of POL products at previous levels in the coming fortnight.
However, the holding of press conference by the OCAC on Thursday creates doubts, thus signalling that the prices of POL products may be revised upward on March 15 in the light of rising trend in international oil prices.
Sohail said that the government has already lost the target of Rs47bn in the account of PDL for the current fiscal as no revenue could be generated in the first half of current fiscal because of taking hit on the national exchequer in bringing the PDL to zero.
The government has gradually started collecting some amount under the PDL for January-June 2005 period but it may range only Rs25-30bn in the current six months as compared to the target of Rs47bn for the whole fiscal.
OCAC has already linked eight factors responsible in pushing up global oil prices: two per cent per annum rise in global oil demand, economic recovery in US, high economic growth in China and India, production capacity constraints – anxiety on shortage, seasonality – severe winter exacerbates demand, production control by oil producing countries, US refineries operating at 97 per cent capacity and geo political situation.
