For the past two years, the people of Pakistan have been facing difficulties due to the increase in Fuel Prices. Oil Marketing Companies and consumers are bracing themselves for another substantial surge in Motor Spirit (MS) and High-Speed Diesel (HSD) pump prices in the upcoming week. This projection follows a remarkable and unprecedented drop in the Pakistani Rupee (PKR) value against the US dollar witnessed during the previous week.
Fuel Price In Pakistan
“Oil Consumers Brace for Higher Prices Amid Rupee Plunge”
“Rupee’s Fall Fuels Speculation of Fuel Price Hike”
“PKR Slide Spurs Predictions of Pump Price Increase”
“Currency Devaluation Sparks Fears of Fuel Cost Surge”
“Impending Fuel Price Rise Tied to Rupee’s Sharp Decline”
Within just ten days, the PKR has experienced a significant depreciation against the US dollar in the informal market, plummeting from the exchange rate of 307 PKR/USD on August 18th to a staggering 320 PKR/USD as of August 28th.
The escalating concerns stemming from this currency devaluation have intensified the anticipation that petrol and diesel pump prices could breach the 300 PKR mark by the end of this week.
The recent trajectory of the rupee’s value has been distressing, particularly since it reached 304 PKR/USD in the interbank market by 9:45 AM today. This downward trend has been unfolding over the past few weeks, with the situation taking a nightmarish turn following the approval of a new $3 billion bailout package for Pakistan by the International Monetary Fund (IMF) in July.
Contrary to prevailing expectations after the disbursement of funds, the local currency embarked on a decline, defying analysts’ predictions of a temporary recovery to levels ranging between 250-270 PKR/USD. This unforeseen shift has now positioned the rupee to trade within the 300-320 PKR/USD for the remainder of the year 2023.
While the PKR’s slide against the USD has perturbed economic managers and stakeholders across the country, its repercussions have devastated the oil and gas sector.
Discussing the matter without revealing the speaker’s identity., a dealer overseeing more than a dozen pumping stations in Punjab disclosed to National Diplomat on Monday that if the exchange rate hovers around 303-305 PKR/USD, the current pump price of petrol at 293 PKR/liter is unlikely to hold steady.
The dealer predicted that the cost of Motor Spirit could surge to a range of 300 PKR/liter to 310 PKR/liter, based on the projected open market PKR exchange rate of 308/USD. He emphasized that the black market rate was hovering between 314 PKR/USD to 320 PKR/USD when the cost of petrol was estimated at levels as high as 310 PKR/liter.
Concurrently, High-Speed Diesel (HSD) is poised to undergo an increase of up to 29.55 PKR per liter, causing the new diesel rate on September 1st to escalate to 320 PKR/liter. The dealer highlighted that the interim government had maintained on August 15th that international petroleum prices had surged in the past fortnight, necessitating an upward revision in consumer rates.
Importantly, between the 1st and 15th of August, the Brent and WTI crude oil benchmarks collectively traded within the $81-87 range. Subsequently, both benchmarks have slipped to levels spanning $78-85. Hence, it is logical that the government might adjust fuel prices in response to the previous week’s depreciation of the PKR.
“Attributing this solely to international commodity price fluctuations rather than the IMF’s imposed cap on PKR/USD trading would be an oversight. Recent reports indicate the possibility of Kakar’s administration discreetly subsidizing energy products to counter public backlash against unnecessary anti-inflation measures.
This strategy could potentially deflect the repercussions elsewhere rather than altering fuel prices,” commented an analyst in a response conveyed via email. The analyst further indicated that given the present circumstances and anticipated outcomes, the overall cost of both MS and HSD is poised for a substantial increase as long as the PKR continues its descent.
An escalation in the dollar value promptly inflates the costs of petroleum products. Consequently, if the dollar continues its ascent in the foreign exchange market, it implies that, regardless of the aftermath, the federal government is unlikely to maintain petrol prices within the current range and may opt for an upward adjustment.
Furthermore, the ramifications of these impending and recent price hikes could significantly influence the inflation trend for August. Should inflation surpass expectations, the central bank could find itself compelled to elevate its core policy rate during the scheduled monetary policy review meeting on September 14th.