Islamabad, Sep 5: Since Pakistan is a net importer of oil, the drop in global oil prices is expected to help the country, according to a research released on Thursday by trading house JS Global.
According to the research, after a spike in 1HCY24, oil prices have dropped by over 20 percent ($17/bbl) during the last five months, to $72.9, which is the lowest level in 15 months. Essentially, since 4QCY21, the aforementioned price has scarcely remained below $73/bbl, making the current pricing among the lowest in the last three years. According to the research, the two most important economic indicators for the nation the trade balance and inflation are significantly influenced by oil.
Bill of imports
According to trade data for July 2024, the average price at which crude oil and petroleum products were acquired was $83/bbl. Since then, the price of oil has decreased globally by 12 percent, or $10/bbl. The import bill would benefit from a drop in realized oil import prices, which might result in a reduction in the CAD forecast for FY25 of almost $800 million (0.2 percent of GDP).
According to the research, a $5/bbl decline lowers the yearly import bill by about $900 million, or 0.25 percent of GDP, or about 10% of the $9.4 billion in current SBP foreign exchange reserves. According to the research, fewer imports of oil might also make space for a few non-essential imports, keeping the current account balance at breakeven.
The inflation rate
Regarding inflation, the report pointed out that one of the main reliefs for the nation has been the continuous trend of disinflation, which has brought the headline CPI back to single digits after three years and prompted the start of a monetary easing cycle after four years.
POL product prices have dropped by about 5% over the past six months, indicating that the recent softening of oil prices is starting to have an impact on CPI. The effects of the second wave have not yet been quantified, it continued.
Levy on Petroleum
Given that even a slight decrease in the price of POL products would only have a minimal effect on inflation forecasts, the government might take advantage of this and raise the Petroleum Levy (PDL) by Rs. 10 per liter.
