Here’s why the recent decrease in fuel prices not political

imran nawaz oil

During the past week, I ran two stories regarding the fuel price decrease in Pakistan, one mentioning that the summary from OGRA has been sent for approval and the other mentioning the PM has approved the reduction in fuel prices.

Naturally, I shared those stories through PakWheels Facebook Page like any other story that I do. On those two stories, I noticed that the supporters of Pakistan Tehreek-i-Insaf (PTI) and Pakistan Muslim League – Nawaz (PML-N) started arguing. PTI supporters claimed that the fuel price decrease is a result of the recent sit-in protests by their party that have been going on for more than 100 days now, and the supporters of PML-N claimed that the decrease is a result of Prime Minister’s policies and him fulfilling his promises that he made during his election campaign about bringing down the prices of general items.

I noticed the same thing about the supporters of both the parties last month when the prices of fuel were reduced drastically first time in several months, but this time I thought it is my duty to enlighten them that the reduction in fuel prices in Pakistan is not political.

As we all know, Pakistan fulfills most of its oil needs by importing oil from the members of Organization of the Petroleum Exporting Countries (OPEC). OPEC is an international organization that coordinates the policies of the oil producing countries. It also controls the demand and supply of the oil in the international market as well as its prices, which means Pakistan has no control over the prices at which it imports oil and Pakistan has to pay whatever the price of oil is in the international market.

During the past decade, the price of oil in the international market shot up to $100 per barrel from $40 per barrel previously due to increasing demand for oil. The high prices made it profitable for the companies in the US to extract oil from hard to drill areas, which increased the oil supply in the international market. Up until now it was a non-issue as there were many conflicts flaring up in the Gulf region, which decreased the global oil supply from the Gulf region and the decreased oil supply from the Gulf was offset by the increased oil supply from the US.

However, the situation is not the same anymore. The conflicts in the Gulf regions are getting resolved, which means the oil production from the Gulf region is getting restored to its former glory. As a result, the supply of oil in the international market is soaring, while the demand for oil is reducing, as many countries are exploring alternative energy sources such as the hydrogen cell and the solar power.

Whenever the supply of something increases and its demand decreases, the price of that thing comes down. Same thing happened with the oil in the international market. The supply of oil increased and the demand decreased, which resulted in a decrease in the price of oil from $115 per barrel in June 2014 to $65 per barrel in December 2014. Some analysts say it would come down to $45 per barrel in the coming months as the OPEC and US are at a price war and both parties are unwilling to decrease their productions to balance the demand and supply of oil.

This brings us to the case of decreasing fuel prices in Pakistan. The fuel prices in Pakistan are very much affected by the international oil prices and the recent decrease in the fuel prices is due to the decrease in oil prices globally. The current government or the sit-in protests have nothing to do with it.

The next time you find people arguing that the decrease in fuel prices is due to XYZ reasons other than those mentioned, please refer them to this article.

Fahad Ullah

I build products and review cars for PakWheels. I am also famous for typing more words than anyone wants to read.

  • Badar Shehzad

    We all know that but don’t you think except for criticising the government all the time maybe we could appreciate the fact that the reduction in fuel price has been effectively passed on to the consumer too, which is very rare in Pakistan.

  • abobobilly

    Writer only accounts for ONE aspect, and that is “global reduction in price”, and seems oblivious to the fact that the Govt always increase the price when its increased, but never decreases it. Even the current decrease is hardly offsetting the previous increase when PML-N took charge. And now when the price is less than $50 … the price in Rupees is still MUCH MORE than that. You know what this means? CORRUPT GOVT thats what.

  • abobobilly

    Passed on to consumer? Really? I can bet you that the decrease is not going to stand on its own because neither the public transport has reduced their fares, nor fuel station owners are ready to accept it. Basically this decrease is temporary, and its going to shoot up soon, back at its previous Rs.100+ price and even higher than that.

  • Shahzeb Asif

    Agreed.

  • Shahzeb Asif

    Great article Fahad!

  • Badar Shehzad

    People had the same reaction at the fall of the price of the dollar but so far a half a year has gone by and the dollar has been hovering around the 103 mark that too because of the sit-ins before those it was under 100..as for the petrol prices, its not under the government to control prices its determined by the market…the trend for oil prices has to be up as it is running out and drilling costs are rising…not everything is to be blamed on to the government. Petrol prices never stand in a democracy because democracy is all about market-based prices….the point of this comment was to show that people got to see a 20 rupee fall in the retail price of petrol that would not have happened 2 years ago….people in our country expect every new government to come in sit and wave the magic wand and turn Pakistan from a 3rd world country into an economic superpower but I guess thats the price you pay when the country is full of uneducated people

  • Badar Shehzad

    Please google “tax rates on petrol” and see those rates for different countries and then be thankful for the low rates you have here

  • Sandtiger

    Point remains that current prices have reduced to half but our government has only reduced Rs. 20 that too after a long wait period. If they made the commitment to match the petrol prices with international market then
    why can’t they remain committed to it once it comes to decreasing the prices?

  • zia

    Hahaha.

  • Guest

    The writer completely ignored that this reduction is not due conflict resolution in Gulf; it is mainly due to exploration of GAS reserves in US. Its conversion to liquid form (Oil) is presently expensive and US is working on some economical usage of conversion. Now OPEC has decided to reduce the oil prices to such low level well before the time when US will be not able to compete them once economical conversion is made possible.

    And one thing more; Writer ignored the fact that when Oil prices started decreasing. These decreased about 04 months ago; but Pakistan Govt did not pass on reduction to the consumers. The consumers kept on paying high prices until September; it was only Dharna issue which prompted Pakistan govt to transfer the benefit to consumer.

  • abobobilly

    Its cute that you blame the market for decrease in petrol price, but fail to account for the same when it comes to Dollar Price (which relate to the price of oil per barrel). Government’s policies matter too. So its pretty much under Govt’s control to maintain the prices, and even better, to pass (or not to pass) the benefit (or loss) to consumer.

    When you talk about “taxes”, you must be joking because we have one of the worst tax system, where rich are relatively taxed lower than the average consumer.

    Also, if you feel that Dharna’s are costing country a great deal of money, i wonder why you (or the likes or you) never open your mouth when Shareef bros evade tax, use illegal 30+ meters on their residence, gift a car or a high-place in an institution without merit, or use tax payer’s money to fund their own showqs.

    We live in a country where “ROADS” are preferred to education. No wonder people want laptops, black cabs, or Danish schools … when they actually need is jobs, education, and their basic needs to be met. The price of electricity is rising continiously, and not only ignorant but incompetent people are being taken-in for high posts (Abdi, ephedrine etc) … yet people choose to stay silent over it. Talk about “uneducated awam” <_<

  • Muhammad Zubair

    The writer completely ignored that this reduction is not due conflict resolution in Gulf; it is mainly due to exploration of GAS reserves in US. Its conversion to liquid form (Oil) is presently expensive and US is working on some economical usage of conversion. Now OPEC has decided to reduce the oil prices to such low level in pre-emption so that once economical conversion is possible then US is not able to compete them due to already lower level of prices.

    And one thing more; Writer ignored the fact that when Oil prices started decreasing. These decreased about 04 months ago; but Pakistan Govt did not pass on reduction to the consumers. The consumers kept on paying high prices until September; it was only Dharna issue which prompted Pakistan govt to transfer the benefit to consumer.

  • abobobilly

    Brother kindly take into account the “Overall” tax system of this country, before talking about taxes on just the petrol. Also, all of those tax money is going in their own pockets and NOT to Govt’s reserves.

  • abobobilly

    EXACTLY. Its a harsh fact that it started to decrease ‘because’ of Dharna. Govt is using this reduction as leverage, to pull people on their side. I hope people don’t fall for this “dog’s bone” this time, and look at the long-term benefit.

    Do we really need to mention about the ‘increase’ the Electricity and Flour prices? And that happened when Petrol prices decreased. So how exactly did that act help the consumer? It didn’t.

  • Askary

    If principle of supply and demand ever exist in Pakistan then we would have abundance of electricity for sure. For the record, international fuel prices went down one month ago and fuel price in Pakistan went down one month after. This is a clear case of political pressure on govt. which eventually resulted in lower prices to show some sigh of relief. Does Nawaz Sharif even know what is supply and demand principle? Is OGRA an independent body? So, in my perspective this article is irrelevant. Please do argue but on facts not rhetoric.

  • Badar Shehzad

    I’d argue but ur steering this convo into a PTI vs PML N argument and I don’t want to go down that road

  • Badar Shehzad

    This article is about petrol prices, lets stick to that first

  • abobobilly

    Yep, the rest of the stuff in Pakistan is irrelevant because of reduction in Petrol Prices. This reduction is not just limited to this, FYI. It has a much larger impact, on numerous other things as well.

  • abobobilly

    Since our rules are THIEVES and CORRUPT, i don’t see where else to take it.

  • Faiz

    And because of this, many off-shore workers are being fired. 7000 have been fired in Norway, and counting.
    Petroleum engineers = Khappay.

  • Faiz

    You don’t have a clue how this Taxation system works.
    Please prove how all the money goes into their pockets, I am curious.
    Ps- Don’t reply if you ain’t got any solid proof.

  • Shafaat

    In my view, basically PML-N wants to show something to the public that they are deceasing prices otherwise they could not have not done. They are not decreasing price in Pakistan in proportionate to international prices. Corrupt Government

  • abobobilly

    Oh right. In a country where poor ends up paying more taxes, i certainly don’t know how the tax system works.

    Schemes like Black Cabs, Laptops, or Roads are funded with tax payer’s money. Whenever they ‘gear-up’ for such scenes or partner with someone, there is always a HUGE fee involved, as a bribe. Its like their cut. Are you really that stupid to believe that roads in Pakistan (say, for Metro) have costed Rs.75 billion, and that too when they have registered them (in ‘audited’ reports for Rs.30 billion)?

    Yep, i really don’t know how this system works.

  • Ahmar Majeed

    According to this article the prices deceased (115-65=)50$. When it was $115 per barrel then we were getting petrol around Rs.110/- so based on rough calculations there should have been decrease of 40-50 rupees!

  • Talha

    hey! the electricity supply is getting better…
    PTI trolls: its bcuz of dharna

    hey! oil prices just got reduced…
    PTI trolls: its bcuz of the dharna, obviously…

    hey!! my bathroom flush just started working again…
    PTI trolls: Duh… its bcuz of PTI dharna…
    AAAAAAAAAAAAAAAAAAAAHHH

  • Nayyer Shahbaz

    You guys must not ignore to ISIS factor which has captured the major oil field in Iraq and daily product of field is around 200 thousand barrel so nearly they are making around 2 million $ for their illegal activities.
    They are selling oil in black market to Turkey and related region at cost around 40-45$/barrel (you remember there is a term Iranian oil in our country which is always less in price + quality but it exits) same is the case now. When you get something from black market at quite less price (40$ instead of 65$), the demand from OPEC and other countries will surely lower and when demand lessens, the prices also start falling.

    However the implementation of this price fall in Pakistan is of-course due to political pressure. And even if intentionally the price falls to 10$ and Govt it not willing to lower price, Avam kiya Ukhar sakti… samjhay kiyaa…

    As long as its in the favor of People, I think Govt. & Opposition should continue the Tug war.

  • abobobilly

    You raise a very interesting and thought provoking point. But the existence of ISIS in itself is a problem right now. How quick they came into existence and then risen to ‘prominence’ … it clearly indicates the kind of powers running them. They primary motives are clear, to paint a violent picture of Islam, and they are fulfilling it successfully, between all the other unknown motives.

    Still, it has surely affected the price of oil in a great way. They are very much considered a competition for OPEC.

    As for the fight between Govt & Opposition, don’t forget that people are always collateral in this. You can always see short term benefits, but if there is no solution, its surely going to get worse over time. And when we have one of the most retarded, corrupt lying baskurds in Govt (along with their ‘friendly opposition’), it sure as hell gonna go haywire, if not settled. Which means, this price reduction right now, is nothing but a dog’s bone, like a bribe to the people. Once the dust settles, its gonna go back up and even higher. It has always been the case.

  • rulers_here

    Its 70 years and we do not have clean drinking water !
    This price drop has given the government a bonus of as high as 7 billion dollars!!
    Atleast give us clean drinking water !
    But I am afraid Nawaz can’t think more than a Contractor.

  • abobobilly

    Nawaz, Zardari and their followers.

    *Aur bhi gum hain zamanay main Roads k siwa* <_<

  • Jahangir Amin

    You have rightly pointed out the useless arguments between supporters of different parties. You should, however, have mentioned millions spent by the govt in advertising the cut in fuel prices in almost all newspapers of Pakistan with Sharif family pictures. Do the govt also dont know the rule of demand and supply?

  • tanveer Hussain

    If the prices of petrolium decreased as you said becouse of the internationaly increase in the supply of petrolium,and you said that pakistan has no link with the any political agreement.But,if the prices of petrolium decreased in pakistan than must the companies and transporters have got the petrol in chiepest prices,so why the prices of the other goods or product did’nt decreased instead of having link with the transport and companies whose have the uses of the patrol.

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