Fuel prices remain a staple stock of intrigue and speculation. Particularly in a country like Pakistan where international oil trends quote local prices due to its dependence on foreign energy. Crude oil, often referred to as the “lifeblood” of the industrialized world, is a closely monitored commodity that affects the economic stability of nations across the globe. Wars have been fought for it and its price and valuation serve as the barometer of wealth for a myriad of countries. Despite prevailing notions of stability or even decline, the Oil and Gas Regulatory Authority increased the prices of fuel in Pakistan. The price of fuel in Pakistan has witnessed an unexpected hike, effective from the 1st of November 2024 for the next fortnight. The empirical results can be seen below:
| Petroleum Type | Old Price | New Price | Difference |
| Petrol | PKR 247.03 | PKR 248.38 | +1.35 |
| High-Speed Diesel (HSD) | PKR 251.29 | PKR 255.14 | +3.85 |
| Light Diesel Oil (LDO) | PKR 150.12 | PKR 147.51 | -2.61 |
| Kerosene Oil | PKR 163.02 | PKR 161.54 | -1.48 |
As evident by the table, High-Speed Diesel (HSD) exhibits the steepest hike with an increase of Rs 3.85 followed by petrol at Rs 1.35. This provides direct inflationary pressure on individuals and business owners.
Petrol is primarily utilized in private transportation, including small consumer vehicles. Hikes on petrol prices in Pakistan place immense burdens on middle and lower-middle-class commuters. On the other hand, high-speed diesel is critical for the larger transport sector, crucial for heavy vehicles like trucks, buses, trains, and farming equipment such as tractors and tube wells.
International Consensus
Under stable international prices of crude oil straddling around $75 per barrel, it seemed apparent that Pakistan would face similar stability or even a fall. Internationally, the average per-barrel cost of petrol (Brent) fell from $76.05 to its current price of $74.66. While high-speed diesel prices saw a drop from $86.5 to $84. Regarding the side of demand, OPEC and the International Energy Agency reduced their 2024 global oil demand growth forecasts, the dearth of demand being primarily pinned to low Chinese demand for crude oil.
According to a report by the World Bank, next year, the global oil supply is expected to exceed demand by an average of 1.2 million barrels per day, a glut that has historically been exceeded during the pandemic-related shutdowns in 2020 and the 1998 oil-price collapse. The new oversupply reflects a structural shift in China, where oil demand has suffered since 2023 amid a slowdown in industrial production and an amelioration in sales of electric vehicles powered by liquefied natural gas (LNG). The general trend towards electric vehicles and green renewable energy may also be to blame. Furthermore, several countries not within the Organization of Petroleum Exporting Countries or its allies (OPEC+) like Russia, China, or the United States are expected to increase oil production. OPEC+ maintains significant excess volume, amounting to 7 million barrels per day, almost double the amount from the beginning of the pandemic in 2019.
The report indicates that the significant oversupply may mitigate the overall effects of a broader Middle Eastern conflict. This may remain true for the long term, but in the short term, it may still result in significant volatility. Speculations on Iranian retaliatory action have nudged up oil prices moving from $71.12 on 29th October to increasing its current price of $74.66.
The report also assessed the results that might augur, if the conflict was to escalate. To be specific, it may result in reducing the global oil supply by 2%, or 2 million barrels per day. It paralleled the scale of disruption similar to the Libyan Civil War in 2011 or the Iraq War in 2003. Disruptions of this scale would see prices initially rally sharply to a peak of $92 a barrel. Given the spike, unaffected oil producers could respond with haste by boosting oil production. As a result, the price spike could be a short-term affair, with the oil price averaging $84 a barrel in 2025. That would still be 15% above the baseline forecast for 2025 but only 5% above the 2024 average.
Domestically, the opposition was in rows, with Jamat-e-Islami leader, Hafiz Naeem, highlighting that while international prices are decreasing, Pakistan is witnessing price hikes. He further urged the government not to “take out its frustration over PIA’s privatization failures” on the public.
It isn’t certain that the failure to privatize Pakistan International Airlines was the stimulus for the hike but it’s a solid guess. It might generally fall under the umbrella of general cuts to energy subsidies. A major highlight of the IMF deal, and one whose importance the current government has countlessly reiterated.
Conclusion
The general trend will remain stable with occasional dips as the discord simmers. At the end of the day, Pakistan is an importer of crude oil and doesn’t dictate or control its price. The international oversupply and general sluggish demand congruent with major investments in green energy may mark a paucity of demand for crude oil. Pakistan will follow this consensus with occasional hikes depending on the level of energy subsidies that need to be cut. Assuming the conflicts between Israel and Iran fizzle out, and Iran retaliates with a similar limited response, it is realistic to assume another dip in prices followed by stability and slow long-term decline.
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The views and opinions expressed in this article/paper are the author’s own and do not necessarily reflect the editorial position of Paradigm Shift.
The author is studying Economics at the National University of Science and Technology (NUST) with a keen interest in financial affairs, international relations, and geo-politics.