Classification of crude oil is based on viscosity (lightness or heavy) and sulfur level (sweet and sour/high, medium and low). Based on these two factors, there are six combinations or classifications. There are, however, many other characteristics; some 160 types of crude oil are traded internationally. Light and sweet crude oil are the easiest to process.
Let us compare Russian crude oil with Saudi Arabia’s. Two out of three Saudi grades are high sulfur carrying from 1.09 to 2.55%. However, sulfur level of Urals is high (1.48%) but is lower than Saudi’s. Other three Russian crude grades are low sulfur (0.16-0.57). API viscosity of three Russian crude oil grades — Siberian Light, Sokol and Urals — are 30.6-35.6 which are comparable with Saudi of 31-33 API.
Subsidy vs stipend?
The government has not opted for a highly attractive proposal of introducing low Ron petrol. It has opted for a stipend of Rs 2000 per person/family. This stipend may have to be doubled to Rs 4000 in the light of the new increase on 2nd June. The programme does not appear to have been received well. Time would be required for implementation and impact, while the price increase is immediate.
Fuel rationing and conservation
It is difficult to support increase in petroleum prices due to general poverty and high inflation. It is also difficult to oppose due to high international prices, widening current account and budgetary deficits. However, conservation is due. It does not appear from the traffic pattern and shopping bazaars that there is a problem in the country. It is estimated that 10-20% petrol and diesel consumption can be reduced if policy steps are taken. Fuel rationing is feasible in the days of IT and NADRA, BISP and Ehsass. Rationing of wheat flour and sugar worked very well in the 1960s. What is the problem now? Private and public companies and agencies may be asked to set a target for fuel saving. Rationing can save both foreign exchange and subsidies.
High prices may lead to saving in consumption. To the extent of careful consumption, it is good. If the consumption reduction is too much affecting economic growth, then it is too bad. Petroleum consumption in the month of May has been reported to have gone down by 2%. HSD’s has gone down by 7% and gasoline’s is up by 3 %. Year on year, increase has been reported in 2021-22 but it may be a compensation for reduction in earlier year. Thus there are mixed signals yet. With this new increase, it is highly likely that the consumption may go down. It is hoped that it does not go down as much to hurt the economy and exports.
Other options and prospects
Finally, economic growth, employment and equity are the solution to enable the people and the economy to absorb and afford the rising energy and commodity costs. Direct and indirect food subsidies are the only possible compensation. However, that requires budgetary resources. International Zakat and welfare funds from rich Muslim countries could also be mobilized for the poor. Time has come to do away or at least reduce the elite capture. Shadow economy is estimated to be 40-50 percent of economy. Tax collection has to be increased. Tax holidays must be eliminated. Sectoral ministries keep bringing policy proposals of 10-20 years tax holiday proposals. The realities of resource gap are not being fully realized.
Market theory of balancing demand and supply appears to have failed. Supply is not catching up with demand. Cartels are powerful. In Europe, there are voices for forming a consumer cartel to face the oil producers’ cartel. Unless the Russian-Ukraine war comes to end, the oil pricing and supply issue will not be settled. It is strange that International Monetary Fund (IMF) and International Financial Institutions (IFIs) and other agencies do not recognize these problems. There is no initiative in the world to alleviate these problems of the developing countries. Oil has been released from strategic reserves by some International Energy Agency (IEA) member states, which caused little or no dent on the market. President Biden plans to visit Saudi Arabia to rebuild the relationship and try to convince Saudis to do something to reduce international oil prices. Will something happen?
(Concluded)
======================================================================Comparative Gasoline price range countries, May 2022======================================================================Countries USD/Liter----------------------------------------------------------------------Venezuela,Libya,Iran Near zero pricesSyria,kuwait,Nigeria, Malaysia 0.3-0.47Iraq,Egypt,Nigeria,Russia,Saudi 0.5-0.794Pakistan,UAE, 0.80-0.986Bangla,Sri-Lanka,Indonesia,Mexico 1.033-1.156USA,Australia,Vietnam, Turkey,Japan,China 1.193-1.37India,Canada,France,Italy,Spain 1.476-1.91Germany,Singapore, Denmark,Norway,Hong-kong 2.096-2.872======================================================================Source:Global Petroleum Prices============================================================================================================================================Comparative Diesel price range countries-May 2022======================================================================Countries USD/Liter----------------------------------------------------------------------Iran,Venezuela, Saudi, Algeria 0.01-0.201Egypt,Malaysia, Qatar,Oman, Russia 0.364-0.764Pakistan,Srilanka,Bangladesh,Taiwan 0.771-0.967Cuba, Kenya,Chile,UAE,Japan 1.05-1.147Indonesia,China,Nigeria,India, 1.213-1.314USA,Brazil,Australia,Turkey,South Korea,Canada 1.342-1.596Italy,Spain, France 1.899-2.009Netherlands,Denmark,Germany,Norway,Hongkong 2.126-2.574======================================================================Source:Global Petroleum Prices======================================================================Copyright Business Recorder, 2022