Petroleum Prices Drop for Third Consecutive Fortnight Amid Lower International Market Rates

Introduction

For the third consecutive fortnight, the prices of major petroleum products—petrol and high-speed diesel (HSD)—are anticipated to decrease by approximately Rs5-6 per litre. This reduction is primarily attributed to the declining international market rates for the fortnight commencing September 1.

International Market Influences

Informed sources have indicated that the prices of petrol and HSD have fallen in the international market by between $2 to $2.30 per barrel over the past fortnight. Depending on the final exchange rate calculations and existing tax structures, this international price drop is projected to translate into a domestic price reduction of Rs5 to Rs5.50 per litre for both petrol and HSD.

Detailed Price Movements

• Petrol Prices:

  • International Decline: The average international price of petrol has decreased to approximately $80.40 per barrel from $82.50 per barrel.
  • Local Pricing: The ex-depot price of petrol currently stands at Rs260.96 per litre. In the previous pricing review on August 14, the government reduced petrol prices by Rs8.47 per litre.
  • Total Reduction: Over the last two fortnights, petrol prices have been reduced by a total of Rs14.64 per litre, which includes a Rs6.17 per litre decrease on July 31.

• High-Speed Diesel (HSD) Prices:

  • International Decline: HSD prices declined internationally to about $88 per barrel from $90.30 per barrel.
  • Local Pricing: The ex-depot price of HSD is currently Rs266.07 per litre. The last pricing review on August 14 saw a reduction of Rs6.70 per litre.
  • Total Reduction: In the last two fortnights, HSD prices have decreased by Rs17.56 per litre, including a Rs10.86 per litre reduction on July 31.

Factors Contributing to Price Reductions

1. Import Premium Adjustments:
   • The import premium on petrol has decreased by approximately 50 cents per barrel to $8.50.
   • The import premium on HSD has remained unchanged at $5 per barrel.
2. Exchange Rate Fluctuations:
   • The local currency has appreciated against the US dollar by 25 cents during the fortnight, contributing to the reduction in local fuel prices.

Historical Price Trends

• Recent Increases:
  • In the first fortnight of July, petrol and HSD prices increased by Rs17.44 and Rs15.74 per litre, respectively.
• Long-Term Reductions:
  • Between May 1 and June 15, petrol and HSD prices were reduced by approximately Rs35 and Rs22 per litre, respectively.

Impact on Various Sectors

• Petrol: Primarily used in private transport, small vehicles, rickshaws, and two-wheelers, petrol price reductions directly benefit the middle and lower-middle classes by easing their transportation costs.
• High-Speed Diesel (HSD): HSD is predominantly used in the transport sector, including heavy vehicles, trains, agricultural engines, trucks, buses, tractors, tube wells, and threshers. Therefore, price reductions in HSD are considered inflationary as they can lower transportation and production costs, potentially reducing the prices of vegetables and other essential commodities.

Taxation and Government Revenue

Despite the price reductions in petrol and HSD, the government has increased the maximum limit of petroleum levy to Rs70 per litre in the finance bill. This move aims to collect Rs1.28 trillion in the next fiscal year, up from Rs1.019 trillion in the previous year, which is nearly Rs150 billion above the Rs869 billion budget target.

Current tax structure on petroleum products includes:

• Petrol and HSD:

  • Petroleum Development Levy (PDL): Rs60 per litre
  • Custom Duty: Rs18 per litre
  • Distribution and Sale Margins: Approximately Rs17 per litre to oil companies and their dealers

• Light Diesel and High Octane Blending Components & 95RON Petrol:

  • Tax: Rs50 per litre, primarily affecting luxury imported vehicles

The government currently charges around Rs78 per litre in taxes on both petrol and HSD. Although the General Sales Tax (GST) on all petroleum products is zero, the combination of PDL, custom duties, and distribution margins significantly impacts the final price paid by consumers.

Conclusion

In conclusion, he recent decline in international petroleum prices has led to a modest reduction in domestic petrol and HSD prices in Pakistan for the third consecutive fortnight. While these reductions provide some financial relief to consumers, particularly in the transportation and agricultural sectors, the increased taxation policies by the government aim to bolster fiscal revenues. The overall impact on inflation and the cost of living remains nuanced, with potential benefits in transportation costs offset by the tax-induced price structures on essential commodities.