Oil prices toppling?

A brutal May and a weak start of June is what summarizes oil prices recently. Their fickle nature is not unknown; yet they never fail to dumbfound the investors, traders, exporters or importers. A few months ago, bulls were running the oil market with a similar bullish outlook. But today bears have reigned in with bearish future prospects.

Crude oil prices have fallen by around 19-20 percent since end of April and beginning of May this year where weaker demand fears and hence lower global economic growth has been a key reason for the spiraling prices. Growth in China is slowing down. US-China trade war has only worsened recently and is expected to lengthen further, which is likely to eventually impact the oil demand in both the countries. Furthermore, the tension with Mexico has taken a notch up where the Trump Administration has threatened to put tariffs on imports from Mexico, which will further derail the growth and demand.

All this has overshadowed the bullish impact on oil prices that was expected after sanctions on Iran and Venezuela were tightened and production from Libya was under threat due to the ongoing violence in the country. In short, the gloomy global economic outlook has overtaken and is weighing heavy on crude oil prices. Going forward, oil prices are likely to remain volatile as all the attention will now be on the OPEC bi-annual meeting in Vienna on June 25 where the ongoing production cuts that are expiring this month will be considered again.

Pump prices in Pakistan however, tell a different narrative. Petrol prices are on the rise. Like always, it seems that the government at home is trying to cash the slide in oil prices attempting to increase the much needed revenue collection. GST on petrol has been increased to 12 percent; and a uniform rate of 17 percent GST has been imposed on high speed diesel, light diesel oil and kerosene oil. Until January this year, the government was charging 0.5 percent GST on LDO, 2 percent on kerosene oil, 8 percent on petrol and 13 percent on HSD. Also, petroleum levy on HSD has been increased in recent months from Rs8 to Rs18 per litre, whereas the petroleum levy on petrol had also been increased from Rs10 to Rs14 per litre.