The recent fuel price revision based on a Cabinet-approved pricing formula reflecting international price fluctuations and other costs is to be reviewed on July 5 taking account of the behavior of crude oil price in the previous two months, Finance Ministry sources told The Sunday Observer yesterday.
Addressing a press conference last week, Finance Minister Mangala Samaraweera said the two key variables for such a price revision would be the prevailing US Dollar rate against Sri Lankan Rupees and the World Market price of Crude Oil based on the Platts Singapore Index. It is learnt that the Singaporean benchmark has been chosen as one option as Sri Lanka’s fuel is being sourced from that country while the actual weighted average cost of importation of fuel at the time of landing will also be considered.
“These prices will be reviewed every two months and announced on the 5th of that month according to this formula. When the benchmark crude oil price goes up it will be reflected and of course when the price goes down, that will also be reflected,” the Minister pointed out.
The present price of Rs. 137 per liter of Octane 92 petrol has been computed based on a crude oil price of US$ 75/barrel and at the rate of Rs. 155 per US Dollar. However, finance ministry officials said there are a whole lot of other variables included in the final computation which may be disclosed in the near future.
On Wednesday (09), Brent crude, the global oil benchmark, rose to a three-and-a-half-year high following the news that the Trump administration revoked the nuclear deal with Iran. Brent crude oil prices, the global benchmark, and US West Texas Intermediate rallied above $77 and $71 per barrel, respectively, in the aftermath of the announcement.
Foreign media reports said that the United States has plans to impose new sanctions against Iran, which produces around 4% of global oil supplies, after abandoning an agreement reached in late 2015 which limited Tehran’s nuclear ambitions in exchange for removing US-Europe sanctions.
“However, according to forecasts, price of fuel is scheduled to come down in the first quarter of 2019 and if it does, the prices will be adjusted accordingly,” the Finance Minister said adding that in the South Asian region, Sri Lanka is presently administering the lowest fuel prices.
“At the moment, Petrol Octane 92 is Rs. 149 in Nepal, Rs. 159 in Bangladesh and Rs. 169 in India whereas the new price of Sri Lanka is Rs. 137 which is lower than the neighborhood,” he highlighted.
Meanwhile, analysts who spoke to The Sunday Observer said global oil prices have increased sharply by about 60% in the last 12 months from an average of about US$ 48.25 per barrel in June 2016 to US$ 77.74 per barrel in April 2018. Despite the rally in oil prices, the Sri Lankan prices had remained unchanged since January 2015, a period where the average price per barrel had hovered around US$40-US$45 per barrel.
“The estimated revenue loss under the existing price has been in the region of Rs. 55.89 billion which is equivalent to annual budgetary allocation for the Ministry of Agriculture. As prices were not reviewed, the Ceylon Petroleum Corporation suffered a loss of Rs. 11.3 billion in the first three months of this year alone,” Finance Ministry officials said.
Gamperaliya in August
The government is planning on launching a rapid village development program named ‘Gamperaliya’ in August by utilizing the savings from the fuel. The 18 month program will include renovation small irrigation of tanks in villages while establishing recreation facilities like playgrounds, gyms, libraries and meditations centers along with Wi-Fi facilities in all villages.
Kerosene at old price for low income earners
Amidst the sharp increase in kerosene prices from Rs. 55 to Rs. 101, the Finance Ministry last week said it will continue to provide the subsidy given for kerosene for certain segments of society including the fishing community, lower-end Samurdhi beneficiaries and the sizable number of estate workers who use kerosene for cooking and lighting purposes.
“All those registered in the Gramasewaka Divisions will continue to get kerosene at the old price of Rs.44 a litre with immediate effect. We will provide them with coupons or direct money transfers to their banks from 1 June so they can purchase kerosene as they did previously,” Finance Minister Mangala Samaraweera announced.
Bus fares, three wheelers to hike prices
Private bus fares are expected to be increase by a minimum of 10% by next week under the annual fare revision, the Lanka Private Bus Owners’ Association (LPBOA) said. LPBOA President Gemunu Wijeratne told the media that the annual fare revision, which was expected to be carried out on 1 June, will be included in this. Accordingly, the current minimum fare of Rs. 10 would increase to Rs. 11, he said.
Meanwhile, the All-Island Three-Wheeler Drivers’ Union said the fare for the first kilometre in a three-wheeler would be increased by Rs.10 from Rs. 50 to Rs. 60 from Thursday (09).
The Union President Lalith Dharmasekera said the decision was taken after the government raised fuel prices.
On the other hand, the Chief of United Lanka Container Transport Owners Association announced yesterday that container transport charges will be increased by 15% from May 20, due to fuel price increase.
US sanctions against Iran to affect oil supply balance: Fitch
The reinstatement of US sanctions against Iran announced on 8 May 2018 and the resulting potential sustained loss of Iranian exports increase the chances of the global oil supply-demand balance remaining in deficit in 2018-2019, Fitch Ratings said last week. This creates upside risks for oil prices relative to our existing assumptions. However, the ultimate consequences for the oil market and prices are difficult to predict since the currently high level of oil prices and the threat of an oil deficit could prevent OPEC+ from reaching a consensus and extending the production cuts deal in its existing form into 2019. This, coupled with continued US shale growth, could swing the market back into surplus. In addition, Iran may now attempt to maximise its production in excess of the OPEC+ quotas.
“The dynamics of oil production in Iran will be one of the key factors driving the global oil supply-demand balance in the medium term. Iran ramped up production significantly from 2.8 million barrels per day (mmbpd) in 2015 to around 3.8mmbpd in 2017 after sanctions were lifted in late 2015,” the agency said in a statement.
Accordingly, Iranian production is unlikely to decline immediately as sanctions will be reintroduced at the end of the 180-day wind-down period applicable for petroleum-related activities. Moreover, Iran may attempt to increase its production and exports now before the sanctions have been put into force.
“Oil prices have increased following the US announcement, albeit not dramatically as this move had been widely anticipated and had been factored into the elevated prices in the period preceding the announcement,” the statement emphasized.