Global oil market recovery hints hike in domestic import cost

The rebound of global oil prices to pre-pandemic levels is likely to hit Bangladesh with a hike in its import costs.

The black gold on Monday climbed back to $60 a barrel having risen more than 50% in the last few months, global media reported.

The Bangladesh government will see a pressure if oil prices keep on rising in the global market. The increasing crude oil prices can also interrupt the supply during this irrigation period. 

Officials at the Bangladesh Petroleum Corporation (BPC), the state-run lone fuel oil importer, also expressed their concern over an oil price hike in the global market. 

"An increase in oil prices always puts a pressure on the balance of payment. But, the current price surge in the world market may not put much pressure on it until it sees extreme hike," Syed Mehdi Hasan, director (operations and planning) at the BPC, said. 

Talking about the supply security, Syed Mehdi Hasan said the BPC has a reserve for 45 days and it has strong contracts with the suppliers to keep the supply uninterrupted. 

Normally, the BPC spent Tk30,000 crore on importing both crude and refined oils from the international market. 

However, in the fiscal 2019-2020 fiscal, the state-owned organisation's expense for this purpose dropped to Tk21,586 crore due to a low demand during the shutdown of businesses across the country. 

The corporation predicts that this year it will have to import 71.50 lakh tonnes of fuel to meet the nation's demand. 

Currently, the country's daily fuel demand is around 14,000 tonnes, which plummeted to 6000 tonnes during the nationwide holidays. 

Diesel occupies around 78% share of the total fuel demand as the country's major modes of transport such as train, launch and motor-vehicle are fuelled by this energy. 

The fuel demand goes up during the irrigation period from December to May, as some of 11.26 lakh pumps run to irrigate croplands. 

Meanwhile, a source at the BPC said the state-run oil corporation will not face any losses until fuel price crosses $70 per barrel. 

Currently, BPC's marketing companies sell per litre of diesel, octane and petrol at Tk65, Tk89 and Tk86 respectively. The prices were set in April 2016. 

Reuters reported that Saudi Arabia's pledge of extra supply cuts in February and March on the back of reductions by other members of the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, is helping to balance global markets and support prices.

In a sign that prompt supplies are tightening, the six-month Brent spread hit a high of $2.45 on Monday, its widest since January last year.

OCBC's economist Howie Lee said the world's top exporter, Saudi Arabia, sent a "very bullish signal" last week when it kept monthly crude prices to Asia unchanged despite expectations of small cuts.

"I do not think anybody dares to short the market when Saudi is like this," he added.

Investors, focused on oil demand recovery forecast by analysts to take place in the second half this year, are overlooking short-term weakness in demand right now caused by anti-coronavirus lockdowns across parts of Europe and Asia, Lee said.

A weaker dollar against most currencies on Monday also supported commodities, with dollar-denominated commodities becoming more affordable to holders of other currencies.

"A weak US jobs report boosted hopes of further stimulus measures," ANZ analysts said, adding that energy products and industrial metals benefited from an increased appetite for risk among investors, according to Reuters.

Stronger crude prices are, meanwhile, encouraging US producers to increase output.

The US oil rig count, an early indicator of future output, rose last week to its highest since May, according to energy services firm Baker Hughes Co.