No ‘immediate’ impact of oil price hike on local mkt

FE Team | Published: October 28, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

FE Report
The skyrocketting oil prices, set to touch to US$100 a barrel soon, are unlikely to leave an "immediate" adverse impact on the domestic market as there is no possibility of supply shortfall until the end of this year.
But the price surge will "severely weaken the government's financial ability" to foot the potentially higher import bill of petroleum products in the foreseeable future from its own source, officials at the Energy Division said.
Per barrel oil price surged to a record US$98 Saturday in the international market amid fresh geopolitical tension over Iran's nuclear programme and Turkey's planned military strike on the soil of war-racked Iraq.
"There's no possibility of immediate supply squeeze. But surging prices will certainly undercut our ability to foot the higher import bill of oil from our own resource," an official of the Division said.
"Bangladesh has an agreement with the Kuwait Petroleum Corporation (KPC) under which the oil-rich Gulf nation is obliged to supply oil up to December. Even global financial institutions are ready to extend loans to help Bangladesh pay the bill. But the problem is repayment of loans from the government's funds," the official added.
In addition, he pointed out, "Bharat Petroleum is waiting for our response to supply gasoline to Bangladesh."
Division officials noted that as the international petroleum market continued to remain overheated, it would exacerbate the financial woes of the cash-strapped Bangladesh Petroleum Corporation (BPC).
"When we struck deal with KPC, the prices of per barrel crude oil was $67, but those reached nearly $98 a barrel. So, you can assume the potentially hefty losses," a BPC official said.
According to figures available with the BPC, the state-owned entity incurred a fresh loss of over Tk 6.50 billion during the June-August period.
Although the figure on losses of September could not be available, a BPC official said last month's losses might be "unusually higher."
Despite last April's hike of fuel oil prices, the BPC is still incurring losses as it imports petroleum products at higher prices from the international market and sells those at lower prices in the local market.
To bail out the state-run corporation from its staggering debts, the government is moving ahead with a plan to take over the BPC's accumulated default loans worth Tk 75.23 billion as its own liability by issuing the equivalent amount of treasury bonds.
But if gasoline prices continue to rise, it may drive up the BPC's liabilities further, thus putting a damper on the government move, a senior BPC official warned.
BPC's losses have been mounting every month since June last, due largely to the choppy international petroleum market.
The BPC incurred losses of Tk 1.6 billion, Tk 2.17 billion and Tk 2.40 billion during the months of June, July and August respectively, according to figures available with the Energy Division.
Although the present caretaker authority constituted an eight-member permanent fuel oil price fixation committee six months ago to adjust domestic fuel prices with the international prices, the move has not yet yielded any positive outcome.
The sources said the government is bulking to hike the domestic fuel prices, given the rising inflationary pressure and the possible public fury.