Long after international oil prices began their steep slide from dizzying highs in 2014, the finance minister hinted yesterday that local fuel prices might be reduced, but declined to say when.
Observers have been worried about a ratchet effect on local oil prices – where an upward trend in prices is thought to be irreversible – because the government has been slow to respond to declining international prices.
But Finance Minister AMA Muhith said local fuel oil prices might finally see a decline after a new pricing policy is drawn up, following a meeting at the Secretariat with a delegation from the Metropolitan Chambers of Commerce and Industry.
The government last raised local oil prices in 2013 in response to rises in international prices, but this is the first hint that prices might finally come down as international prices hit rock bottom.
Back in the black
The Bangladesh Petroleum Corporation (BPC), the state monopoly, is projected to make a tidy profit of nearly Tk4,000 crore in 2015 on the back of sliding global oil prices after losing public money during the previous five years.
“We have recovered the BPC losses,” Muhith said yesterday. “We are considering reducing the price of fuel oil, but to do so we must first make a proposal in the Cabinet.”
The turnaround in the BPC’s fortunes, which last made a profit, of Tk323 crore, in FY2008-09 comes despite an increase in petroleum imports.
The BPC was in the red for every year between FY2009-10 and FY2013-14 due to high international oil prices that had not been adjusted for in the local market.
Currently, the oil importer owes Tk3,000 crore to the state banks, Petrobangla and the National Board of Revenue.
The losses forced the government to set aside a huge amount of taxpayers’ money as subsidies in its budget during those five years. The government has doled out Tk30,986 crore since FY2008-09 to keep the price of petroleum products low in the local market.
“A new pricing policy has not yet been prepared. When it is formulated, local prices may be revised,” Muhith said.
The World Bank earlier suggested the adoption of an automatic pricing system that pegs local prices at a 10% discount to international prices, but this has not been taken up.
In 2014, Bangladesh was projected to import 5.5 million tonnes of crude and refined oil in 2015. Some 5 million tonnes were imported last year. The projection for 2016 is 5.2 million tonnes of oil.
In 2013, the government increased local fuel oil prices when the international price skyrocketed to $122 per barrel.
Locally, octane currently sells at Tk99 per litre, petrol at Tk96 per litre and kerosene and diesel at Tk68 per litre.
Although international fuel oil prices hit a recent low of $40 per barrel, the BPC has not reduced local prices. Brent crude has fallen about 40% over the last year to less than $40 a barrel as the Organisation of the Petroleum Exporting Countries has sought to defend its market share by pumping record volumes of oil.
Oil to continue slide in 2016
The slump in global oil prices could hit bottom in early 2016 although prices are likely to remain low for the next couple of years, British Petroleum’s Chief Executive Officer Bob Dudley said.
“A low point could be in the first quarter,” Dudley said in a BBC radio interview broadcast on Saturday.
Brent crude prices fell by 34% last year after shedding 48% in 2014. The plunge in global oil prices has pushed inflation close to or below zero in many countries, Reuters reports.
“Prices are going to stay lower for longer, we have said it and I think we are in this for a couple of years. For sure, there is a boom-and-bust cycle here,” Dudley said.
Dudley said a more natural balance between supply and demand could come back in the third and fourth quarter of this year, after which stock levels could start to wear off.
Dudley also said he did not agree with Bank of England Governor Mark Carney’s use of the term “stranded assets” to describe oil and gas reserves held by companies but which may prove unviable as the world moves to a low-carbon economy.
Carney used the phrase in a speech in September in which he called on companies to be more open about their “climate change footprint” to avoid abrupt changes in asset prices that could destabilise markets.
