In the wake of the Government of Pakistan’s recent adjustment of petroleum prices to account for the Rupee’s depreciation, a startling turn of events has unfolded within a mere day, jolting Pakistanis awake as global crude markets have surged.
Future contracts for all three benchmark crudes – Brent, West Texas Intermediate, and Dubai Fateh – have reached their highest levels since October of the previous year.
More alarmingly, the spot prices of the principal oil blends that Pakistan imports have also soared to their highest levels in 2023. This, however, may offer a glimmer of hope amid the crisis. Yet, considering the broader macroeconomic context, this situation threatens nothing short of calamity if prices do not recede on Monday.
Ahfaz Mustafa, CEO of Ismail Iqbal Securities, warns of the immediate consequences: higher fuel prices at the pump, sustaining high inflation, and exerting additional pressure on the Rupee to USD exchange rate. He cautions that this scenario hinges on the persistence of elevated prices.
So, what has led to this abrupt spike in crude prices? Mustafa explains that global oil prices have surged due to constrained supplies, stemming from depleting US inventories and the likelihood of oil production cuts by OPEC.
What does this imply? On August 31st, Russian Deputy Prime Minister Alexander Novak announced that Russia had agreed to further reduce its oil exports in collaboration with OPEC+ partners. The full details of this agreement were set to be revealed in the coming week.
Russia’s decision to curtail crude exports aligns with OPEC+ efforts to bolster prices amid global economic uncertainties. Meanwhile, Saudi Arabia, an OPEC+ partner, has also initiated a 1 million barrel per day production cut, which is set to expire at the end of September, with its intentions for October yet to be disclosed.