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Business & Finance

Cut in POL products' prices: 'OMCs want protection against inventory losses'

The government should also take into account the inventory losses of the oil marketing companies (OMCs) while taking major decision on pricing of petroleum products.
Published 25 Mar, 2020 12:00am
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The government should also take into account the inventory losses of the oil marketing companies (OMCs) while taking major decision on pricing of petroleum products.
Industry experts told Business Recorder here on Tuesday that Pakistan like other economies is going through a challenging time. The COVID-19 has dented the overall economic activity in the world and Pakistan may also be moving to a lockdown situation sooner rather than later.
The oil prices in Pakistan have been massively slashed by the government. Such opinion is formed based on the fact that a continued declining trend in global oil prices has been seen. The crude prices have fallen from US$60.22/BBL in February 2020, to US$22.90/BBL in recent days.
This decline in global oil demand is mainly attributed to the Coronavirus pandemic which is wreaking havoc across the globe. The epidemic has caused a massive decline in economic activity worldwide through initial glut in prices was attributed to the Saudi-Russia price war.
Due to consistent decline in international crude prices, a huge decline in prices of POL products is expected in Pakistan. According to industry experts, this expectation seems highly ambitious based on two important reasons.
Firstly, Government of Pakistan is in dire need of revenues to deal with the COVID-19 epidemic. The economic activity has significantly slowed down in the country that will hit revenue collection target of the Federal Board of Revenue. Various taxes imposed on the POL products on the other side will contribute significantly to the exchequer.
Secondly, experts believe that most important thing is that the Oil and Gas Regulatory Authority (OGRA) determines prices of the POL products based on historic data of the POL products procurement on an average of past month. Since there is a considerable lag of several weeks in the loading vs unloading of cargoes, the real impact of the drop in international prices may be seen from May2020 onwards if the international price trend stays the same.
It is estimated therefore that prices will be reduced gradually based on when and how the cargoes are unloaded over the March and April period. As per the industry analysts, while a reduction in the oil prices is expected to bring a sigh of relief for general public, the OMCs are also envisaging huge inventory losses which the Government of Pakistan will keep in mind while taking relevant decisions about pricing.

Copyright Business Recorder, 2020

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