Likelihood of Petrol Prices Surge in the Week Ahead.
The imminent escalation of tensions in the Red Sea, affecting crude supplies in Europe and the Middle East, is poised to result in a substantial surge in MS petrol and High-Speed Diesel (HSD) prices in the coming week. Reports suggest that Pakistan is likely to implement a significant increase of Rs. 7 per liter for both petrol and diesel on January 31, 2024, marking the first hike in four months. This anticipated rise is primarily attributed to the recent upswing in international prices for HSD, petrol, and crude oil, with a notable increase of $4-5 within a week.
As of the latest data, Brent crude has surpassed $80 per barrel, registering a 0.34 percent increase in the past 24 hours. Simultaneously, US West Texas Intermediate crude prices have risen by 0.41 percent, settling at $75.4 per barrel. The international prices for petrol and HSD have climbed to approximately $89 and $97-98 per barrel, respectively, from $83 and $93 per barrel in just one week. This surge is expected to translate into higher domestic market prices in the upcoming week. It is noteworthy that the Rupee-to-Dollar exchange rate in the local market remains stable at 279, helping to mitigate more significant fluctuations.
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On January 15, 2024, the caretaker federal government in Pakistan reduced the petrol rate by Rs. 8 per liter to Rs. 259.34, maintaining the price of high-speed diesel at Rs. 276.21 per liter. The country’s petroleum prices are largely contingent on international prices and the exchange rate, with the petroleum development levy playing a crucial role. Currently, the government imposes a Rs. 60 levy on each liter of both petrol and high-speed diesel.
Globally, the Brent crude futures market and other physical markets in the Middle East, Europe, and Africa are reflecting tighter supply conditions, partly due to shipping delays in the Red Sea as tankers avoid the region. This disruption coincides with other factors such as heightened Chinese demand, intensifying competition for crude procurement, potentially impacting Pakistan’s fuel supply unless tensions in the region ease. The market structure of Brent, utilized to price nearly 80 percent of the world’s oil trade, reached a two-month high last Friday. This increase in tension follows air strikes by the United States and the United Kingdom on Yemen in response to Yemen’s Houthis targeting Israel-bound ships in the Red Sea last year, a retaliation against Israel’s actions in Gaza. The Houthis are calling for an end to the war and the facilitation of humanitarian aid into the Gaza Strip.
