Pakistan should take advantage of lower oil prices, says BMP official

Secretary General (Federal) of the Businessmen Panel (BMP), Ahmad Jawad, said oil price crash in the international market is an opportunity for the country to buy and store oil in order to reduce inflation.

"Pakistan consumes about 350,000 barrels per day, some 0.35 percent of world consumption." Pakistan has not imported a single ship of oil in the past one month following the spillover of reservoirs amid a drastic drop in demand for petroleum products. Oil prices collapsed to -$37 per barrel for the first time in history in the world market and it may also go down. It was, however, "good for nothing in case of Pakistan".

Petroleum Division failed to place any import orders for oil since its storage capacity was full across the country.

Earlier, the government was mulling over placing order for oil import on the futures counter when oil price fell to $30 per barrel in March but later it dropped the idea of oil hedging on fears of a further crash in prices which came true, it has been learnt.

Jawad said it was unfortunate oil marketing companies didn't add extra storages to reserve oil despite government's having designated oil city in Chakri near M2 Motorway. Only Hascol Petroleum added their storage in that vicinity. While the government still has a number of options to look into, like purchasing in bulk quantities now and storing in onshore storage facilities.

In a similar fashion to what China, Japan, and India are doing, Pakistan can allocate a certain percentage of its foreign exchange reserves towards strategic purchasing of petroleum. As the lockdown eases, the demand for oil will rise.

According to sources, Pakistan's storage capacity is half a million tons of oil, out of which approximately 300 tons are being utilized.

This leaves approximately 150,000 to 200,000 tons excess onshore storage.

One should know in an age of volatile oil prices, hedging has become a crucial and important part of business for most successful companies, in the oil value chain as well where the existence of hedging strategies adds significantly to a company's value.

Jawad said that Pakistan must develop itself into being a more sophisticated player by taking full advantage of hedging, futures and swaps.