Ongoing global oil price decline to benefit Pakistan: brokerage house

The ongoing decline in global oil price “benefits Pakistan” and will help its trade balance and inflation figures, said brokerage house JS Global in its report on Thursday.

“Pakistan, being a net oil importer, is on the favourable end of the ongoing oil price correction,” read the report.

JS Global was of the view that the commodity price plays a pivotal role in Pakistan’s trade balance and inflation.

“Petroleum imports account for ~30% of total imports and ~55% of total export proceeds, making them a significant driver of the trade deficit, and oil prices directly impact the 6%-weighted transport segment of the inflation basket,” read the report.

The assessment comes as global oil prices have declined by approximately 20% i.e. $17 per barrel in the past 5 months, reaching their lowest point in 15 months at $72.9 per barrel, the brokerage house said owing to increased supply, built-up inventory, and reduced demand has pushed oil prices.

Meanwhile, “OPEC+ production cuts, coupled with concerns over China’s economic growth and the potential for a global recession are some of the key factors,” behind the price drop, it added.

Citing the latest Pakistan Bureau of Statistics (PBS) data, the brokerage house said trade data for Jul-2024 indicates that crude oil and petroleum product prices were purchased at an average of ~$83 per barrel, where global oil prices have reduced 12% i.e. $10 per barrel from those levels.

“Decrease in realized oil import prices would positively impact the import bill, potentially reducing our CAD (Current Account Deficit) estimate for FY25 by around $800 million (0.2% of GDP),” it said.

Moreover, a drop of $5 per barrel reduces the annual import bill by around $900 million i.e. 0.25% of GDP, read the report.

The brokerage house noted that there could be a potential counterbalancing effect of lower oil prices on remittances.