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Friday, February 16, 2024

Why is there a global price hike in the oil market?

Today, due to widespread vaccinations in the world's major oil and gas-consuming economies, global oil demand is rapidly returning to pre-pandemic levels (the U.S., China, Europe). With more mobility and traffic patterns, life is returning to normal. Global consumption of all refined products except kerosene has virtually returned to pre-pandemic levels therefore many countries are facing direct results.

The current oil market is out of the ordinary. The Covid-19 pandemic has caused funkiness and dislocations throughout the global economy, including in the energy sector. This isn’t just a US problem; energy markets are worldwide, and while America remains the world’s biggest producer, there are many other factors at play.

Today, due to widespread vaccinations in the world’s major oil and gas-consuming economies, global oil demand is rapidly returning to pre-pandemic levels (the U.S., China, Europe). With more mobility and traffic patterns, life is returning to normal.

Global consumption of all refined products except kerosene has virtually returned to pre-pandemic levels. Aviation fuel continues to be curtailed due to international flight restrictions, while gasoline, diesel and kerosene continue to be curtailed.

Read more: Why does Pakistan need strategic petroleum reserves?

Inventories of petroleum shot up massively during 2020 amid peak lockdowns

So, OPEC+’s job has been two-fold over the past 16 months — hold back enough supply to.

OPEC+ has begun the process of easing supply cuts by adding 400,000 barrels a day each month. Global inventories are now close to “normal” pre-pandemic levels, but OPEC+ remains hesitant of adding more supply at this time, even though major consuming nations including the U.S., Japan, and India have urged them to.

In fact, oil prices have risen 63.5% since the beginning of the year, reaching their highest in seven years due to strong demand and limited supply. Natural gas prices are rising even more rapidly, more than triple in Europe and nearly triple in the United Kingdom. This has widespread implications for global growth, inflation and the real economy.

We are clearly seeing an upswing in demand due to the reopening of economies, i.e. more travel, manufacturing, etc., as well as the release of pent-up demand from last year. More importantly, this is coinciding with supply-side shortages.

As such, during winter, storage was drawn down as these natural resources were used to heat homes. At the same time, while truck drivers were considered essential employees and allowed to work, the training schools for these truck drivers were shut down. As a result, today we have an acute shortage of trained truck drivers who can transport these natural resources in large container trucks, which in turn, is leading to storage not getting replenished as quickly this year too. Going into the 2021 winter season, storage across Europe, particularly the UK, and parts of Asia are running at below-average levels.

Simultaneously, the drought in South America has increased demand for traditional energy sources such as coal and gas to create electricity, meaning that South America, Europe, and Asia are essentially fighting for the same LNG trucks, which are already in short supply.

Read more: Mari Petroleum launches dastarkhawan to combat hunger in Pakistan

As a result, we’re seeing a lot of supply chain breakdowns, with trucks waiting for coal or LNG shipments for up to 48 hours just to get them to go forward. Several Asian countries, including China (the world’s largest coal exporter) and India, have recently issued warnings about depleting stocks. Prices have risen as a result of the supply-demand imbalance, as well as heightened demand expectations due to the impending winter.

Pakistan petrol price hits all-time high amid global oil price hike

Petrol prices in Pakistan have reached an all-time high, dealing a further blow to consumers who are already suffering from growing inflation, which is posing severe issues to the PTI government.

Officials raised the price of petrol by Rs8.03 per liter on Friday. According to a declaration from the finance ministry, the average daily price of a liter of petrol rose to Rs145.82 per liter on November 5 from Rs137.79 the day before. In Pakistan, petrol is the most widely utilized transportation fuel.

The price of high-speed diesel (HSD) has increased to Rs142.62 per litre from Rs134.48 previously. The price increase would mostly affect the transportation and agriculture sectors, which are the two largest users of HSD.

The price of kerosene has risen from Rs110.26 to Rs116.53, while the light rate has remained unchanged.

This is the second price hike in two months. This is the second time in two months that oil prices have increased. On October 16, the government raised the price of petrol by Rs10.49 per liter and that of high-speed diesel (HSD) by Rs12.44 per litre. The official notification justified the increase saying that oil prices in the international market had surged to $85 a barrel which was the highest since October 2018.

Read more: International market responsible for inflation in Pakistan: Tarin

The planned increase in the petroleum development levy would come on the recommendation of the International Monetary Fund (IMF), the prime minister’s adviser on finance Shaukat Tarin told the local broadcaster Geo News.

 

The author is a research associate and sub-editor at GVS. She has previously worked with Express-News Islamabad. She can be reached at az.aeliya@gmail.com. The views expressed in this article are the author’s own and do not necessarily reflect Global Village Space’s editorial policy.