Surging oil prices may push up trade deficit further

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Nizam Ahmed Bangladesh's trade deficit is likely to be enormous in the current fiscal year (FY), as petroleum price is projected to cross $170 per barrel by the middle of the next calendar year, market monitors and traders said Thursday. A forecast of the International Energy Agency (IEA) for 2012 said the crude oil price that started rising in November last (from $80 per barrel) is likely to cross $150 per barrel by the middle of the upcoming summer. A tonne is equal to 7.5 barrels or 8.0 barrels, subject to the density of the liquids, such as refined oil, crude, condensate etc, said an official of the Bangladesh Petroleum Corporation (BPC). However, the prices of refined petroleum products would be higher, as the refiners will add a refining charge of some $20.00 per barrel in 2012, a US refiner said in its website. The price of crude oil has already climbed above $101 per barrel in light holiday trading on growing consumer confidence and prospect of stronger demand, traders said. Benchmark crude rose $1.52 Tuesday to $101.19 per barrel in New York. Brent crude rose $1.21 to $109.17 per barrel in London, an online market report said. The IEA also projected that the crude oil prices would rise to $212 per barrel by 2035, as the oil demand would rise by 14 per cent between 2010 and 2035, from 87 million barrels per day (bpd) in 2010 to 99 million bpd in 2035, when its demand in transportation sector in the emerging economies would also rise. "Oil demand, which was resilient in 2011 despite crisis in the Euro zone, is poised to escalate drastically for the foreseeable future, following constrained supply in the wake of possible political upheaval in the major oil-producing nations," the IEA forecast said. "Of course it's true that the global economy will suffer, if the European debt crisis is not contained. However, it's also true that emerging market demand will buoy oil prices and eventually push crude beyond the record level that the world saw in 2008," the IEA forecast also said. A continuation of depreciation of Taka in tandem with the rising oil price will simply aggravate the trade gap, as importers will have to pay higher prices for importing commodities, including petroleum, to be needed for the oil-fired power plants, traders said. The trade deficit of the country stood at Tk 576.75 billion ($7.69 billion) in the fiscal 2010-11, about 49 per cent up from the previous fiscal's (2009-10) Tk 386.25 billion ($5.15 billion), a data of the Bangladesh Bank showed. A US dollar which was available in the country's Kerb market at Tk 70 in early 2011, was traded at Tk 84 in the same market Thursday, a foreign currency dealer told the FE. Officials of the state-run BPC said the country's annual requirement of fuel oil rose, owing to setting up of some 40 oil-fired power plants over the past two years. More oil-based power plants are likely to be installed in the coming months, unless the authorities concerned do not change power plant policy. The country's fuel import bill surged over 101 per cent year on year to $1.195 billion in the first quarter of the current FY, as more oil-fired power plants went into operation. The fuel import bill is likely to cross $5.0 billion in the current FY against $4.0 billion in the last FY. The import of fuelfurnace oil is expected to be doubled to 12 million barrels, while diesel import to rise some 25 per cent to 28 million barrels, the BPC officials said. Besides, the BPC will also import 2.9 million barrels of jet fuel, 750,000 barrels of octane, and 675,000 barrels of kerosene in the current FY. Meanwhile, the parliamentary committee on energy affairs recently advised the authorities concerned not to award any more deals to set up oil-fired power plants due to rise in fuel cost. "We should switch over to coal as primary fuel for power generation as quick as possible," Prof M Tamim, former adviser of the past caretaker government, told the FE. Tamim, a teacher of mineral resources engineering at the Bangladesh University of Engineering and Technology, advised that the authorities concerned should opt for exploring coal instead of importing costly fuel. The oil-fired rental and peaking plants were set up mainly under private sector as part of the government plan to generate 20,000 megawatts (mw) of electricity by 2021.