KARACHI: Benchmark Arab Light Crude has dropped by 52.77 per cent to $26 per barrel now from $55 in January 2015, but the government reduced petrol and diesel prices by a meagre 3pc and 6pc, respectively, in the last one year.

In January 2015, petrol and diesel prices stood at Rs78.3 and Rs86.23 per litre while currently the two fuels were selling at Rs76.2 and Rs80.79. The government instead of passing on the benefit of record low world oil prices to consumers has raised petroleum development levy (PDL) and general sales tax. Currently, consumers were paying around Rs24 and Rs27 per litre sales tax on petrol and diesel.

Saqib Hussain of Sherman Securities said oil prices had been on the decline due to global oversupply and sluggish demand, but domestic oil prices did not show any big drop as the government raised taxes to meet its budgetary targets.

Arab crude has dropped to $26 from $55 a barrel

The government regulates prices of petrol and diesel while furnace oil (FO) price is determined through a market mechanism.”Interestingly, consumers are paying $0.73 per litre on petrol which is far lower than regional average of $1.1 per litre. One of the reasons for higher petrol price in the region is because of higher devaluation of regional currencies against the US dollar,” he observed. On the flip side, consumers were paying more on every litre of diesel consumed compared to other regional countries.

On the other hand, he said FO price declined by 27pc during the last year in line with international prices. “In Pakistan, 90pc of FO is consumed by the power sector, as 40pc of country’s total electricity is generated through it”.

He was of the view that power generation companies would increase furnace oil consumption to meet energy demand and cheaper prices will improve their overall liquidity.

Since petrol and diesel meet 85pc of the fuel requirement in domestic transportation, lower product prices may create additional demand for automobiles, he said.

Published in Dawn, January 15th, 2016