The fall in Brent crude prices to an almost five-year low of $63 per barrel — around half of its June high of $115 — has horrified many energy investors.
But the worse might yet come. Morgan Stanley warned last week that oil prices could slip to as low as $43 a barrel, and investment firm UBS remarked: “The journey to $43 per barrel could happen quicker than what many out there think”.
But keeping the woes of investors of energy stocks aside for a moment, the fall in crude prices has been a blessing for the economy. “Pakistan imported petroleum products and crude worth $14.8bn in the fiscal year ending June 30,” reminds Muzammil Aslam, MD of Emerging Economies Research. He pointed out that the figure is based on $100 a barrel.
Calculations by this writer show that potential savings due to a 40pc drop in crude prices would work out at $5.6bn, or a whopping sum of Rs571bn for the full fiscal year.
A meeting of the Cabinet committee on energy last week, chaired by Prime Minister Nawaz Sharif, was told that the country had saved Rs27bn in the past month due to the decline in oil prices, as the cost of electricity generation — heavily dependent on furnace oil (FO) — had receded. It was also decided to replace FO-based independent power producers (IPPs) with gas-based or coal-fired plants.
However, investors in the heaviest capitalised oil and gas sector are shell shocked at the sudden evaporation of their wealth, as stocks all across the energy chain are taking a steep plunge and there seems to be no end in sight.
