Predicting oil prices is not the easiest business around, but when Energy Information Administration speaks - markets around the world move. In its latest short-term energy outlook, the US governments energy department forecasts a relatively stable price of international oil but substantial rise in consumption for the remaining part of 2009 and 2010. If its projection holds any truth, it could strengthen the argument of economic stabilisation in Pakistan in the short to medium term.
Firms involved in energy exploration, production, refinery and marketing businesses are likely to remain hedged against volatility owing to stable international oil prices. However, if prices rise beyond EIA estimates, it would only add to the attraction of E&P listed scrips, as they are already trading at considerable discount from its regional peers. Oil marketing companies and refineries would also welcome any oil price hike to reverse their fortunes considering that most of the listed companies in these sectors have been adversely hit by lower margins and inventory losses.
The broader implication of steady international oil prices to the economy is even more pleasing. However, the picture for Pakistan is not as rosy as it could be for China and other Asian economies, which EIA expects to fuel expansions of a global recovery in world oil consumption.
The increase in oil demand in Pakistan will stem from the need to bridge the power shortage rather than fuelling a tangible industrial or infrastructure growth. And if prices remain stable it might offset some of the strains on electricity tariffs, petrol prices and textile industry - the nations largest export contributor.
Every one dollar rise in international crude oil price would cost around $100 million to the exchequer in the form of import bill, which in case of EIAs forecast of $2-3 per barrel hike is not so significant, which strengthens the view of economic recovery.
Yet one should bear in mind that although, the direction of EIAs forecast has remained the same, historically the actual prices have exceeded its expectations. Now, based on this and hike in demand forecast, if oil prices shoot anywhere close to the tune of last year, the scenario would be entirely different.
Add this to the list of fiscal slippages due to heavy government borrowing, higher inflation likely to emerge from higher electricity tariffs and fuel prices, ambiguity surrounding Kerry-Lugar Bill, non-materialisation of FoDP pledges and a tighter monetary policy eventually to make matters even worse.