Oil market crash

The price of crude oil crashed to $ -37.63 on Monday but it rose to $1.10 the next day. The unprecedented fall was caused by the prevailing glut in the US, European and Asian markets, throttled demand for petroleum products due downturn of global economy because of coronavirus pandemic  and scarce storage facilities in oil purchasing industrialised countries, although Russia and OPEC had struck a deal on production cut. As these countries may not make contract for fresh purchase, sharp rise in crude oil price is not expected. However, crude oil may gradually rise to $20 in June. Speaking at a current affairs programme of Private TV Channel, Foreign Minister Shah Mehmood Quershi said that low prices of petroleum products will cost positive impact on Pakistan’s economy.

Advisor to the Prime Minister on Finance, Dr. Abdul Hafeez Sheikh had told cabinet meeting last month that Pakistan can get benefit from the plummeted oil prices caused by sagging demand in the international market. At that time, crude oil price had crashed to $26 per barrel and there were bold indications that it may fell below $20 per barrel. The meeting was informed that Finance Division was working on various hedging options to take advantage of the falling oil prices and finalise proposal for the approval of the cabinet. The lack of storage facility for additional oil imports, limited crude oil refining capacity and above all the liquidity crunch make difficult to exercise the hedging options.

Over the past five decades, expansion in oil storages has never been a priority by successive governments. Oil and Gas exploration activities had been carried out in unelected governments during 1978-85 and 2000-02. Pakistan could have avoided petroleum crisis in 2015 had there been enough storage facility in the country. Unfortunately, lesson has not been learnt from that crisis either by default or design. Even in the present government, Petroleum Division is least bothered to conceive any programme of building storages for crude oil and petroleum products. The same attitude has been shown for setting up at least one crude oil refinery, preferably near to operational oil fields. Attock Oil Refinery has closed down its second unit of 5000 barrel per day output. Earlier, first unit of the same capacity was shut down. The prevailing grim oil refining scenario will certainly force exploration companies to cut production of crude oil from oilfields in Khyber Pukhtunkhwa. Previous PTI provincial government had made frantic efforts to persuade the PML-N government in the center to set up an oil refinery at Karak district of Khyber Pukhtunkhwa but to no avail.