Govt raises petrol price by Rs1.12, HSD by Rs1.11 per litre till Aug 27

Read:Govt raises petrol price by 39 paisas, HSD by Rs2.40 per litre for Aug 25Last month, the government announced a new pricing mechanism under which petroleum product prices would be reviewed and notified on a daily basis, replacing the weekly pricing mechanism, as renewed tensions between the United States and Iran continued to drive volatility in global oil markets and raise concerns over fuel supplies.

2024-25, petroleum products constitute one of the country's largest import categories, making the economy highly vulnerable to changes in global crude oil prices. Domestic refineries satisfy only part of national demand, while the remainder is met through imports of crude oil and refined petroleum products.

Consequently, every increase in international oil prices raises Pakistan's import bill, pressures foreign exchange reserves, and contributes to inflation. Pakistan previously exercised significant government control over petroleum pricing through subsidies and administrative interventions. While these measures temporarily protected consumers, they imposed substantial fiscal costs.

During periods of elevated global oil prices, successive governments delayed passing price increases to consumers, creating financial pressures for oil marketing companies, refineries, and the national budget. Large fuel subsidies widened fiscal deficits, increased public borrowing, and weakened macroeconomic stability.

Global geopolitical developments continue to pose significant risks. International oil prices are influenced by decisions taken by OPEC+, conflicts in the Middle East, sanctions on oil-producing nations, and disruptions in critical shipping routes such as the Strait of Hormuz and the Red Sea.

Any interruption in these supply chains can immediately increase crude oil prices and freight costs. Since Pakistan imports the majority of its petroleum requirements, these developments quickly translate into higher domestic fuel prices.

Oil prices on Tuesday fell about 4% to ​a one-week low as traders shrugged off the latest US sanctions campaign against Iran, ‌viewing economic pressure as posing less risk to oil supplies than a military escalation.

Brent crude futures were down $3.74, or 4.1%, at $88.43 a barrel by 2 pm ET (1800 GMT), while US West Texas Intermediate crude futures fell $2.85, or 3.4%, to $81.67, paring earlier losses.

The shift from military conflict to economic pressure in theUS-Israeli war with Iranhas reduced some ​of the oil market's anxiety, said Saxo Bank head of commodity strategy Ole Hansen, adding ⁠the US sanctions announcement was not as forceful as some traders had expected.