Oil trickles up

IF the price of oil in international markets has been going down since June, with decreases of 40pc in some prices, why has Pakistan's oil import bill risen in the same period compared to last year?

Some answer this question by arguing that current deliveries have been purchased much earlier and therefore don't reflect the price declines that have kicked in more recently. If the import prices don't reflect the declines, then why are we seeing declines at the pump? And why is the government claiming that they have suffered a revenue loss of Rs70 billion due to lower prices? How can prices at the pump be declining, as well as revenue collections from oil, but the import bill has gone up, albeit marginally, since the same period last year?

Last year, from July to November, our oil imports were $6.43bn. That figure for the same period this year has come in at $6.69bn, reflecting an increase of $260 million, or 4pc. How do we square this with a 50pc decline in prices of crude in international markets?

How can we claim a revenue loss of Rs70bn resulting from oil price declines given that the import bill for oil imports hasn't changed much?

Another explanation might lie in high- er quantities being imported given the price declines. According to data from the Pakistan Bureau of Statistics, imports of petroleum crude from July to November of this year were just about 2.9m metric tons, whereas petroleum products were at 5.5m metric tons. Compare this with the quantities from last year in the same period and you'll find that crude imports were pretty much the same (3.1m tons) whereas products were also at 5.5m tons. That is, no major increase in quantities from last year as well.

A further breakdown yields some insights however. When you look at the monthly import quantities and dollar values from July till November of crude and prod- ucts, you notice something happening. Imports of crude rise sharply in the month of August, and remain elevated through September and October as well, declining again in November. Products, on the other hand, remain at more or less the same level (just above 1.1m tons per month) throughout.

The increases in import of crude oil are larger by a little margin in these three months (August till October) then dip again in November, the last month for which data is available.

What do we make of this? Crude oil is imported by refineries whereas product (which represents a number of refined fuels) is imported by marketing companies. One immediate suggestion is that refiners used the dip in prices to build inventories, starting in August, but seeing the declines persisting, backed away from the practice. This would make intuitive sense, but begs the question why marketing companies did not similarly move to build inventories when prices went down.

What is harder to tell from this data, which is basically the aggregate of a various number of category purchases made at various prices, is why the dollar value has registered an increase out of proportion to the increases seen in declared quantities landing at the port.

In the prices, we don't see the effect of lower prices kicking in until the month of October. Between August this year and last, for instance, there was an 8pc increase in crude quantity imported, but a 31pc increase in the dollar value. By October, we see a 28.5pc increase in quantity from October last year, but only a 13pc increase in price.

This indicates that the falling price in international markets landed on our doorstep by October, and sent a wave of uncertainty through the oil sector. In November, for example, the quantity of crude imported falls sharply in comparison to last year, perhaps because refiners now anticipated further declines and preferred to wait for the price to drop further.