Why are petrol prices increasing in Pakistan? Petrol prices are a major concern for people all over the world because they affect the cost of transportation, goods, and services. Petrol prices in Pakistan are influenced by a variety of factors, some of which are beyond our control, while others are influenced by government policies.
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The Asian Mirror investigates the causes of rising petrol prices in Pakistan.
Role of petrol in economy
In Pakistan, power generation, industrial activities, and transportation all rely heavily on petroleum products. The importance of gasoline to Pakistan’s economy can be summarized in the following ways:
Transportation
Petrol is the most commonly used fuel in Pakistan for automobiles, motorcycles and other vehicles.
Because the country has so many automobiles, there is a high demand for petrol.
The transportation industry is heavily reliant on a consistent and reasonable petrol supply to keep the economy running.
Industrial Sector
Petroleum and its byproducts are a major source of energy for several industries in Pakistan, including textiles, cement, and chemicals.
It is used in a variety of processes, including power generation and heating.
Fuel price fluctuations may affect the production costs of these industries, thereby influencing employment and economic growth.
Energy Generation
Petroleum products, particularly petrol, are used to generate energy in Pakistan.
Even though the country’s power generation mix is diverse, some power plants continue to use petroleum-derived fuels to meet energy demands during peak hours or when alternative sources are insufficient.
Revenue Generation
Because of the various taxes and levies levied on petroleum sales, the Pakistani government earns a significant amount of money from them.
Increased fuel tax receipts can assist the government in funding public services and infrastructure expansion.
Causes of Petrol Price Increase in Pakistan
Here are some of the factors that affect petrol prices worldwide:
- International Crude Oil Prices
The cost of crude oil, the raw material used to make petrol, is the most important factor influencing petrol prices.
Crude oil prices are determined on a global scale by supply and demand, geopolitical tensions, and economic conditions.
For example, as demand for crude oil rises, so will the latest petrol price, and vice versa.
- Exchange Rate
Because the price of crude oil is usually quoted in US dollars, the exchange rate between the local currency and the US dollar will also have an impact on the price of petrol.
If the local currency falls in value against the US dollar, imported crude oil becomes more expensive, raising petrol prices.
- Taxes
To generate revenue, the government imposes taxes on petrol, which vary by country. Petrol taxes can account for a significant portion of the retail price in some countries, and changes in these taxes can have a significant impact on the price of petrol.
- Refining Costs
Another factor influencing petrol prices is the cost of refining crude oil into petrol. The cost of refining is determined by the complexity of the refining process as well as labour and material costs.
- Distribution Costs
Another factor influencing petrol prices is the cost of transportation, storage, and distribution.
The distance between the refinery and the retail outlet, as well as the cost of transportation and storage, will all have an impact on the price of petrol.
Why are petrol prices increasing in Pakistan?
Several factors influence the price of petrol in Pakistan, including international crude oil prices, exchange rates, and government taxes.
A rise in the global price of crude oil will raise the price of petrol in Pakistan.
Furthermore, suppose the Pakistani rupee falls in value against the US dollar. In that case, the cost of imported crude oil would rise, raising petrol prices in Pakistan today.
Finally, changes in government taxes can have an impact on the retail price of petrol in the country.
Here is the breakdown of why petrol prices are increasing in Pakistan:
- Increase in international crude oil prices
The price of crude oil on the international market is a major factor influencing the price of petrol.
Crude oil is the raw material used to make petrol, and its price is determined by supply and demand, geopolitical tensions, and economic conditions.
When demand for crude oil rises, so does its price, which has a direct impact on the price of petrol.
- Depreciation of the Pakistani Rupee
The price of crude oil is typically quoted in US dollars, and the exchange rate between the Pakistani Rupee and the US dollar also influences the price of petrol.
When the rupee falls in value against the US dollar, the cost of importing crude oil rises, causing the price of petrol to rise.
- Taxes and Levies
As a means of raising revenue, the Pakistani government imposes taxes and levies on petrol.
These taxes and levies, which account for a significant portion of the retail price of petrol in Pakistan, can rise in response to changes in government policies, contributing to the rise in petrol prices.
The retail price of petrol is heavily influenced by taxes.
To generate government revenue, most countries, including Pakistan, levy taxes on the sale of petroleum products.
Excise taxes, value-added taxes (VAT), and other levies are examples.
Petrol taxes can account for a significant portion of the retail price, and an increase in taxes can result in a corresponding increase in the price of petrol.
For example, if the government raises petrol taxes, the cost of producing and selling the fuel will rise, resulting in higher retail prices for consumers.
This means that even if the price of crude oil remains unchanged, an increase in taxes can result in an increase in the price of petrol.
- Increased demand
Petrol demand has been increasing both domestically and internationally, resulting in higher prices.
This rise in demand can be attributed to a rising population, increased economic activity, and urbanisation.
- Government regulations
End-user prices for petroleum products are the sum of several different components, each representing a portion of the overall value chain for oil.
Fuel cost is an important consideration at every stage of the oil and gas industry, beginning with crude oil discovery and continuing through the production, refining, and marketing of petroleum products.
Governments in every country levy fuel taxes, with the exception of those whose economies rely heavily on oil exportation.
These taxes are either used to generate funds to meet budgetary targets or as a tool to drive energy policy.
The price structure for various petroleum products varies by country around the world.
The government can control prices by providing subsidies or imposing price ceilings. Alternatively, the government could let an unregulated and free market determine prices.
Despite the fact that Pakistan’s economy is market-based, the government controls the price of petrol.
The Oil and Gas Regulatory Authority (OGRA) sets end-user pricing and is in charge of informing consumers of the price.
