The uncertainty in petrol price of Pakistan

With the anticipated implementation of sales tax, Pakistan may soon announce a substantial hike in petrol prices, sources warned on Wednesday.

They said that the local authorities had been expressly requested to impose the sales tax on petroleum goods during the current visit of the International Monetary Fund (IMF).

The announcement is expected on March 1, 2023, for the following two weeks. But, according to the sources, the government may announce the change in petroleum prices sooner than expected.

For the past few years, the nation has maintained a 0% sales tax in an effort to assist the common public in light of rising petroleum product prices.

Sales Tax

According to the sources, the introduction of a 17% sales tax would cause a substantial increase in petroleum costs.

According to a statement made by Finance Minister Ishaq Dar, the government raised the cost of gasoline and high-speed diesel (HSD) by Rs35 per litre each as well as kerosene and light diesel oil (LDO) by Rs18 per litre each on January 29, 2023.

According to media sources, further increase is anticipated as a result of a cash-strapped nation's decision to enact a sales tax on petroleum products as an additional step.

The international funding agency is urging the country to hike electricity and gas tariffs, establish a general sales tax (GST), and privatise some state-owned enterprises.

Gas Stations Strike

Many gas stations have started hoarding and have rejected retail sales out of fear of another significant increase in the price of petroleum.

According to experts, the government has only partially raised rates; the remainder will follow in the next several days.

Since it does not account for recent currency rate depreciation, this is only a partial rise, according to Fahad Rauf, Head of Equity Research at Ismail Iqbal Securities.

Prior to the most recent increase, Fahad Rauf predicted that the price of gasoline might rise by 44% to PKR 272 per litre from PKR 215 per litre, taking into account current international pricing and dollar/rupee, the petroleum levy, and the introduction of sales tax. The price of fuel might also increase by 50% in the similar scenario, from PKR 272 to PKR 341.

Rauf also assesses the pricing of fuel items with recent fall in rupee value. In his opinion, the price of gasoline might increase by 23% to PKR 309 per litre from the present PKR 267 per litre,  The price of diesel may also increase in the similar scenario by 28% to PKR 291 per litre from the current PKR 280.

How price of petrol works

The spot price of a barrel (159 litres) of benchmark crude oil is commonly referred to as the price of oil. This price serves as a benchmark for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent Crude, Dubai Crude, OPEC Reference Basket, Tapis crude. Instead of any nation's internal production level, the price of oil is decided by global supply and demand.

History of Petrol Price

In the late nineteenth and early twentieth centuries, the price of crude oil remained largely stable on a worldwide scale. This changed in the 1970s, when the price of oil significantly increased on a global scale. Oil supply, demand, and storage shocks, as well as shocks to global economic expansion, have all traditionally been major structural drivers of oil prices.

The 1973 oil crisis was caused by an OPEC oil embargo targeting countries that had backed Israel during the Yom Kippur War, followed by the 1979 oil crisis caused by the Iranian Revolution, the 2007–2008 financial crisis, and the more recent 2013 oil supply glut that resulted in the "largest oil price declines in modern history" from 2014 to 2016.

Dip in Oil Price

One of the three largest drops in oil prices since World War II, the decrease of 70% was the longest-lasting since the supply-driven crash of 1986. The United States resumed oil exports after its 40-year export embargo was lifted in 2015, making it the third-largest oil production in the world.

The prices of crude oil were "pretty stable" during the late nineteenth and early twentieth centuries. Global oil prices saw a "substantial surge" in the 1970s, in part as a result of the 1973 and 1979 oil crises. Global prices "spiked" to US$107.27 on average in 1980.

These have included the 1973 oil crisis brought on by the Organization of Arab Petroleum Exporting Countries, led by Saudi Arabia, the 1979 oil crisis brought on by the Iranian Revolution, the Iran-Iraq War (1980–88), the 1990 Iraqi invasion of Kuwait, the 1991 Gulf War, the 1997 Asian financial crisis, the September 11 attacks, the 2002–2003 national strike at Venezuela's state-owned oil company Petróleos de Venezuela, S.A. (PDVSA), and the Organization of the Petroleum Exporting.

One of the three largest drops in oil prices since World War II, the decrease of 70% was the longest-lasting since the supply-driven crash of 1986. The United States switched from being an importer to an exporter of oil by 2015, becoming the third-largest producer. At the start of the COVID-19 pandemic, the 2020 Russia-Saudi Arabia oil price war caused a 65% drop in world oil prices.

The "oil supply shocks," "oil market-specific demand shocks," "storage demand shocks," "shocks to global economic development," and "speculative demand for above-ground oil stockpiles" are structural factors that have affected historical global oil prices.