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Oil price

revision unlikely

RECORDER REPORT

KARACHI: The federal government may not revise the oil prices in the wake of expected increase in production by the Opec and to help grow the economy in the country.

International oil prices were on a roller coaster ride. Signs of sharp divisions within Opec and supply losses in the North Sea and Nigeria firmed up prices earlier. The key concern dividing the cartel members was the time of raising production ahead of second quarter, when global demand normally declines. Saudi Arabia is of the view that producers should give the market adequate supplies in order to stabilise prices. Iran, Libya and Algeria, however, wanted to extend production cuts beyond the seasonal decline during the second quarter of 2000. Consequently international Brent Oil prices rose sharply to $32.05 (spot prices) on March 7.

Analysts expect the oil prices in international markets might ease as soon as the Opec would decide to increase its production by 1-1.5 million barrels per day. The meeting is scheduled to be held on March 27 and later again by the end of the second quarter.

They believe that supply during second quarter of the year would be lower than normal as they would try to build depleting stocks. The prices are likely to move down to $25 per barrel. However, analysts viewed that it will take a year or so to touch $20 per barrel.

If prices in the international market pegged around $30 per barrel, the government has to sacrifice its revenue targets set from oil surcharges. The rise in oil prices, especially the furnace oil prices would jeopardise the efforts of the government to put the economy back on track.

Adnan Kundi of ABN Amro Securities said that almost all energy prices (gas and electricity) are linked to movements in the international oil price.

The increase in cost of furnace oil makes the restructuring and demand management exercises of state-owned power utilities Wapda and KESC even more difficult.

At the same time another increase in furnace oil and diesel prices would lead to inflation as both are consumed in manufacturing and transportation sectors.

He pointed out that it would affect the economic revival plan of the government. ''Keeping in view Pakistan's economy, mounting oil import bill, widening trade gap and increasing budget deficit, the economic pundits do not seem to have many options at their disposal for tackling this issue without sacrificing either the revenue targets or a slow-down of the structural reforms,'' Adnan said.