Petrol Prices Likely to Increase Next Week

MS petrol and High-Speed Diesel (HSD) prices are expected to rise sharply next week due to ongoing tensions in the Red Sea, which impacted crude supplies in Europe and the Middle East. Pakistan is expected to hike the price of petrol and diesel by Rs. 7 per liter each on January 31, 2024. If increased, this would mark the first spike after 4 months. The upward forecast is based on international prices for HSD, petrol, and crude oil, which have risen by $4-5 in one week. Brent crude crossed $80 per barrel, up 0.34 percent in the past 24 hours while the US West Texas Intermediate crude prices increased 0.41 percent to settle at $75.4 per barrel. The international price of petrol has increased to around $89 per barrel from $83 per barrel, while the price of HSD has hit $97-98 per barrel from $93 per barrel in just one week. This surge will likely translate into higher market prices at home next week. Notably, the Rupee/$ rate in the local market is stable at 279 which has kept even bigger fluctuations under control. On January 15, 2024, the caretaker federal government reduced the petrol rate by Rs. 8 per liter to Rs. 259.34. The price of high-speed diesel was kept unchanged at Rs. 276.21 per liter. The prices of petroleum prices in Pakistan are largely dependent on international prices and the exchange rate. However, a major component in the current prices is the petroleum development levy. The government is currently charging Rs. 60 levy on every liter of both petrol and high-speed diesel. Globally, the Brent crude futures market and other physical markets in the Middle East, Europe, and Africa have been reflecting tighter supply, owing in part to shipping delays in the region as tankers avoid the Red Sea. This disruption has coincided with other reasons such as rising Chinese demand to intensify competition for crude procurement, which will likely hurt Pakistan’s fuel supply unless tensions ease. Brent’s market structure, which is used to price nearly 80 percent of the world’s oil trade, reached a 2-month high last Friday, as tankers diverted from the Red Sea following air strikes by the United States and the United Kingdom on Yemen. In retaliation to Israel’s genocide on Gaza, Yemen’s Houthis last year started attacking Israel-bound ships in the Red Sea. The Houthis want Tel Aviv to end the war and allow humanitarian aid into the Gaza Strip.