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Friday, June 14, 2024

Government Set to Reduce Fuel Prices Amid Global Oil Slump

The government is set to reduce petrol and diesel prices due to declining international oil prices, despite recently proposed tax increases in the federal budget.

Following the presentation of a heavily tax-loaded budget in the National Assembly, the government is poised to leverage the recent slump in international oil prices. Starting June 16, petrol prices are expected to drop by Rs9.28 to Rs259.08 per litre, down from Rs268.36 per litre. Similarly, high-speed diesel (HSD) prices are anticipated to fall by Rs4.02, bringing the new price to Rs266.20 per litre from the current Rs270.22 per litre. This marks the fourth consecutive reduction in petroleum product prices since May 1.

The decline in international oil prices can be attributed to the cessation of the Israel-Iran conflict and a decrease in attacks from Houthis on ships in the Red Sea. Diesel prices have decreased to $90 per barrel and petrol to $84 per barrel.

However, the premium remains at $9.59 per barrel for petrol and $6.50 per barrel for HSD. With European holiday travel expected to increase demand for petroleum products, a potential rise in international prices looms, though the current trend offers temporary relief.

Based on data up to June 13, the government may also reduce the price of kerosene by Rs2 per litre, setting the new price at Rs169.61 per litre, and Light Diesel Oil (LDO) by Rs4.07 per litre, lowering it to Rs153.25 per litre.

These adjustments consider current government taxes and a zero-dollar exchange adjustment. The Internal Freight Equalization Margin (IFEM) on petrol is Rs7.83 per litre and Rs3.73 per litre on HSD. Expected ex-refinery prices for petrol and diesel are projected to decrease to Rs175.07 per litre from Rs184.02 per litre and Rs185.69 per litre from Rs189.71 per litre, respectively.

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Budget Proposals and Future Implications

The federal government has proposed a 5 percent sales tax on petroleum products in the 2024-25 budget, alongside an increase in the maximum petroleum levy on petrol and HSD to Rs80 per litre, up by Rs20 per litre. This could potentially affect future pricing, with levies on Light Diesel Oil (LDO), High Octane Blending Component (HOBC), and E-10 gasoline also proposed to increase by Rs25 per litre to Rs75 per litre.

These proposed changes follow a recent decrease in prices, where on June 1, the government reduced petrol prices by Rs4.74 per litre and HSD by Rs3.86 per litre. Despite these reductions, the imposition of new taxes and levies could offset the benefits from declining international oil prices, posing a complex challenge for economic policy and consumer relief efforts.