Barely thirty days ago, EIAs flagship short-term energy outlook signaled a rather stable trend in international crude oil prices. Come November, and they raised their forecast quite sharply, predicting crude oil to average $77/bbl in the winters, which is a good 10 percent over its earlier expectations.
"Prediction is difficult especially when it is about future" famously said the Nobel laureate physicist Niels Bohr. But these days they say that prediction is even more difficult when it is about oil prices. What holds significant importance in EIAs forecast is the fact that every time in its last four predictions - prices have surpassed the forecast limit, albeit, following the predicted direction.
EIA cites sustained turnaround in China and other Asian countries to fuel expansions of a global recovery in world oil consumption, which is expected to grow a steady one percent in the short to medium term. The implications to Pakistan economy are going to be of dual nature - sweet for some and bitter for most.
The upward revision in forecast is certainly good news for few blue chips at KSE as E&P and oil marketing companies would welcome the much needed oil price hike to reverse their fortunes. Since most of the listed energy firms have been adversely hit by lower margins and inventory losses - a rise in oil prices would earn them higher margins while any volatility will lead to sizeable inventory gains to brush up their earnings.
However, there is a darker side of the story as well, one that unfortunately affects a much wider population. The bulk of our crude oil demand is meant to meet the electricity shortfall and the ever increasing oil demand has little or nothing to do with organic industrial growth.
Every extra dollar that adds up to the oil price means more imports of black oil leading to wider trade deficit and more burden on the masses. Moreover, it would doubly fatten the import bill as refineries are still reluctant to produce much because of circular debt. A more direct consequence of increased oil price of such magnitude is a sharp increase in petrol and diesel prices - which in turn would further inflationary pressures.
Not to mention the electricity tariffs, which are already due to be raised as per IMFs directives, will be a huge blow to the end consumers as oil price hike would result in further increases in tariffs - more than what is already agreed upon. And considering that the EIA has been quite conservative in its estimates of late - the picture could be grimmer than whats painted here.