Global supply snags may heat up local oil market

Bangladesh oil market is likely to feel the heat if prices of the black gold in the international market keep surging for a long period.

But for now, there is no reason to be worried as the country has adequate stock of oil to meet the local demand for at least 50 days, assured officials of the Bangladesh Petroleum Corporation.

Recently, tension escalated in the Middle East after drone attacks on two oil facilities of Saudi Arabia, causing fall in global oil supply by five percent and increase in crude oil price by up to 19 percent.

If oil prices surge recurrently, the government will have to disburse subsidy to the country's lone oil importing agency as it used to do four years ago.

In 2015, the state-owned petroleum importing agency got Tk600 crore in subsidy from the government for importing oil.

"If oil prices continue rising in the global market, Bangladesh will have to buy oil at higher prices which will increase the budget deficit," said Dr AB Mirza Azizul Islam, former adviser to the caretaker government.

"And the Middle East crisis does not seem to be resolved very soon. So, the government may have to adjust oil prices in the coming days," he added.

Dr Ahsan H Mansur, executive director at the Policy Research Institute, however, echoed the view of the officials of the country's petroleum corporation.

"Right now, we need not worry about oil price hike in the world market. I think the supply-related problem will be solved by 10 to 15 days. It will not be a problem if the OPEC [the organisation of petroleum exporting countries] increases the supply," he said.

But, if the supply remains interrupted for a long time, prices will also increase, and Bangladesh will have to buy fuel at costly prices, he said.

According to the state-owned oil importing agency, Bangladesh has a stock of 5,22,000 tonnes of diesel, 16,700 tonnes of octane, 33,960 tonnes of jet fuel and 50,000 tonnes of furnace oil in its all depots across the country.

Meanwhile, most of the consignments against Letters of Credit (LCs), opened in August last for October, have already reached the country.

The stock of oil is enough to meet the local demand till upcoming October. The country has a monthly demand of four lakh tonnes of fuel on an average.

"Bangladesh will have to open new LCs for the demand in November. If the ongoing surge in oil prices continues due to the disruption in Saudi Arabia, it will start hitting Bangladesh market from November," said Mohammad Zahid Hossain, deputy general manager (commercial and operation) at the petroleum corporation.

He also said there will be no impact in the Bangladesh market as Saudi Arabia has already started bringing the situation under control.

The government petroleum importing agency imports oil from Saudi Arabia and United Arab Emirates (UAE) in two methods.

It imports 50 percent of the local demand on the Government to Government contract and the rest through open tenders.

Generally, the government agency opens LCs one month earlier for the next month import, calculating the reserve of the previous month and the accepted demand for the next.

In every three to four days, oil loaded vessels arrive at Bangladesh seaports, with each vessel carrying 30,000 tonnes of oil on an average.

The next consignment of 100,000 tonnes of crude oil is scheduled to come from Saudi Arabia. If the price is hiked by this time, Bangladesh will have to buy it at a higher price too, said Md Abu Hanif, general manager (commercial and operation) at the Bangladesh Petroleum Corporation.

"We have to open new LCs from October for the import in November. However, with the oil in our stock, we can continue up to October," he said.

The BPC is selling one litre diesel at Tk65, jet fuel at Tk71, octane at Tk89 and furnace oil at Tk42 in the local market.