Petrol prices are a vital concern for people worldwide, as it affects the cost of transportation, goods, and services. Petrol prices are influenced by several factors, some of which are beyond our control, while government policies can influence others. Graana.com brings you the causes of petrol price increases in Pakistan.
Causes of Petrol Price Increase in Pakistan
Here are some of the factors that affect petrol prices worldwide.
International Crude Oil Prices
The most significant factor affecting petrol prices is the cost of crude oil, the raw material used to produce petrol.
Crude oil prices are set on the global market and are influenced by supply and demand, geopolitical tensions, and economic conditions. For example, when the demand for crude oil increases, the price will also go up, and vice versa.
The cost of crude oil is usually quoted in US dollars, so the exchange rate between the local currency and the US dollar will also impact the price of petrol.
If the local currency depreciates against the US dollar, it will make the imported crude oil more expensive, increasing petrol prices.
The government imposes taxes on petrol to raise revenue, and these taxes can vary from country to country. In some countries, taxes on petrol can account for a significant portion of the retail price, and changes in these taxes can significantly impact the price of petrol.
The cost of refining crude oil into petrol is another factor that affects petrol prices. The cost of refining depends on the complexity of the refining process and the cost of labour and materials.
The cost of transportation, storage, and distribution of petrol is another factor that affects petrol prices. The distance between the refining facility and the retail outlet, as well as the cost of transportation and storage, will impact the price of petrol.
In some countries, the government may subsidize the cost of petrol to relieve consumers. The level of subsidy will impact the price of petrol, and changes in the subsidy can result in changes in the retail price.
Why are petrol prices increasing in Pakistan?
Petrol prices in Pakistan are influenced by several factors, including international crude oil prices, exchange rates, and taxes imposed by the government. An increase in the global price of crude oil will increase the cost of petrol in Pakistan.
Additionally, if the value of the Pakistani Rupee depreciates against the US dollar, the cost of imported crude oil will become more expensive, leading to an increase in petrol prices. Finally, any changes in the taxes imposed by the government can also affect 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
One of the primary factors affecting the cost of petrol is the price of crude oil on the international market. Crude oil is the raw material used to produce petrol, and supply and demand, geopolitical tensions, and economic conditions determine its price. When the demand for crude oil increases, so does its price, which directly impacts the cost of petrol.
Depreciation of the Pakistani Rupee
The cost of crude oil is usually quoted in US dollars, and the exchange rate between the Pakistani Rupee and the US dollar also plays a role in determining the cost of petrol.
If the Rupee depreciates against the US dollar, the cost of importing crude oil becomes more expensive, leading to an increase in the price of petrol.
Taxes and Levies
The government of Pakistan imposes taxes and levies on petrol as a means of generating revenue. These taxes and levies, which are a significant portion of the retail price of petrol, can increase with changes in government policies, contributing to the rise in petrol prices in Pakistan.
Taxes have a significant impact on the retail price of petrol. In most countries, including Pakistan, taxes are imposed on the sale of petroleum products to generate government revenue.
These can be excise taxes, value-added taxes (VAT), or other levies. The taxes imposed on petrol can be a substantial portion of its retail price, and an increase in taxes can lead to a corresponding increase in the price of petrol.
For example, if the government increases taxes on petrol, the cost of producing and selling the fuel will increase, which will be passed on to consumers in the form of higher retail prices. This means that even if the cost of crude oil remains unchanged, an increase in taxes can still result in a rise in the price of petrol.
The demand for petrol has been increasing domestically and internationally, leading to higher prices. This increase in demand is due to a growing population, increased economic activity, and rising urbanisation.
The prices that end users of petroleum products pay are the total of several different components, each representing a fraction of the overall value chain for oil.
Fuel cost is an essential consideration in every stage of the oil and gas business, beginning with the discovery of crude oil and continuing through the production, refining, and marketing of petroleum products.
Fuel taxes are levied by the governments of every nation except those whose economies are heavily dependent on oil exportation. These taxes are used either to produce money to fulfill budgetary targets or as an instrument to drive energy policy.
The price structure for various petroleum products is different in each country worldwide. The government may regulate prices by either providing subsidies or enforcing price ceilings. Alternatively, the government may allow an unregulated and liberal market to decide prices.
The price of gasoline is controlled by the government of Pakistan, even though the country’s economy is market-based. The Oil and Gas Regulatory Authority (OGRA) determines the end-user pricing and is responsible for notifying consumers of the price.
In conclusion, petrol prices are influenced by several factors, including international crude oil prices, exchange rates, taxes, refining costs, distribution costs, and government subsidies.
While some of these factors are beyond our control, it’s essential to understand how they impact the price of petrol so that we can make informed decisions about our consumption and transportation choices.
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