ISLAMABAD: As a tug of warfare between Saudi Arabia and Russia over oil manufacturing, coupled with the speedy unfold of coronavirus, has despatched crude costs crashing to a 17-year low within the international market, Pakistan has determined to provide you with an oil hedging plan.
Specialists are of the view that crude oil costs within the worldwide market will crumble to $15 per barrel as large producers and exporters Saudi Arabia and Russia appear to be nowhere close to ending their value warfare.
The battle between the 2 giants has added to the woes of oil market the place demand has gone down sharply within the wake of coronavirus outbreak that has precipitated lockdowns in lots of international locations.
Sources advised The Specific Tribune that the cupboard, in a latest assembly chaired by Prime Minister Imran Khan, directed the Finance Division to expeditiously finalise a proposal for hedging petroleum merchandise and convey it to the cupboard, via the Financial Coordination Committee (ECC), for formal approval.
Adviser to Prime Minister on Finance and Income Dr Abdul Hafeez Shaikh advised the cupboard assembly that costs of petroleum merchandise had plummeted within the worldwide market following the collapse of an settlement between Saudi Arabia and different oil producers, led by Russia, on limiting crude manufacturing.
He stated the Finance Division was engaged on varied hedging choices to make the most of the present low oil costs, which might slash the import invoice and depart a optimistic affect on the nationwide economic system.
Cupboard members emphasised that the hedging proposal needs to be finalised on the earliest and offered to the cupboard for approval.
Crude costs hit a 17-year low beneath $26 per barrel on Wednesday amid fears that the coronavirus pandemic and containment measures may set off a world recession.
A debate has kicked off within the international market as to the place the oil value stoop will cease. Specialists consider a number of corporations will probably be washed away and industries will probably be hit laborious by the virus, leading to low demand for power the world over.
Oil specialists in Pakistan have been of the view that the federal government ought to draw up a plan to fill the out there storages by importing petroleum merchandise for future wants.
Additionally they urged that Pakistan may discover the potential of renting storages in numerous international locations to maintain cheaper petroleum merchandise there for assembly its future wants.
They stated although it was the worst time for the oil-producing international locations, it offered a perfect alternative for the importers to retailer the commodity. Even the US is planning to import cheaper petroleum merchandise and retailer them as strategic reserves.
Nevertheless, each the petroleum-sector regulator and the Petroleum Division have failed to assist construct storages within the nation. In 2015, Pakistan confronted a petroleum disaster, which may have been averted had there been sufficient storages.
Neighbouring India plans to make the most of low oil costs by filling its strategic petroleum reserves. It has a related firm named Indian Strategic Petroleum Reserves Restricted, which works on constructing the strategic reserves.
It has constructed storages at three places in southern India to retailer as much as 36.87 million barrels or about 5 million tonnes to hedge towards provide disruption.
Customers in Pakistan have been paying petroleum growth levy (PDL) for a number of years. The levy was imagined to be spent on growing the petroleum sector together with the institution of storages.
Nevertheless, earlier governments tactfully modified its title as petroleum levy and by no means used it for establishing storages. Specialists say the present authorities ought to instantly take a choice on this regard.
They emphasise that Pakistan has bought a chance now to determine a separate account to maintain funds for spending on constructing oil storages within the nation. These strategic reserves can be utilized in emergency conditions and Pakistan ought to comply with the instance of nations just like the US and India.
Revealed in The Specific Tribune, March 20th, 2020.