Reducing oil prices would benefit economy

An oilfield worker walks past an oil sands facility in Alberta, 3 November 2011.Reuters

The prices of fuel oil have dipped to a record low due to lockdowns imposed across the world amid coronavirus outbreak. According to the latest statistics, each barrel oil is being sold at $22 to $30. Several countries including US, India are storing more oil than in demand to use the opportunity. But Bangladesh has failed to grab the moment due to lack of depots.

The storage of diesel, jet oil and furnace oil is about to glut the existing capacity in the country, Prothom Alo reports on Monday. Anchorage of three ships headed for Chittagong port was delayed due to storage crisis. According to fuel policy, a 60-day oil reserve is supposed to be there, but our depots have a capacity for 40-45 days. A number of deports, however, are being constructed in Maheshkhali. More oil could be stored once the construction is completed.

Almost all economic activities including mass transport services came to a halt since 26 March. This caused a slump in oil demand. A number of factories including apparel factories reopened in the beginning of May. Shops too have reopened since 10 May. With this, oil demand is on the rise.

Question has arisen regarding how much advantage we could take from the fall of oil price in international market. We cannot increase import due to depot crisis. We could contribute to reduce production cost of agricultural and industrial products by reducing oil prices in domestic market. Each litre furnace oil is being sold at 42 taka, diesel and kerosene at 65 taka and octane at 89 taka. The prices were fixed on 24 April 2016. Bangladesh Petroleum Corporation (BPC) grosses 13 to 40 taka profit per litre fuel oil.

Oil prices have not been reduced here despite fall in international market. BPC argues it had to keep the prices same to make up previous losses. This could benefit BPC as an institution, but has a negative influence on the economy. Cost of production will decline in many countries due to oil price fall while Bangladesh’s export industries will face competition. If oil prices shrink, industry production cost will decrease and the economic activities will be strengthened. This will have positive impact on every sector. The government subsidy in agriculture too will decrease. It’s just a trick to show a high subsidy upholding high price for fuel.

Mass transports were shut for a long due to lockdown. The owners incurred loss. Transport services will be resumed gradually as the situation turns normal. If the price of oil is reduced, this will render a positive impact on the transport fare. The economy of the country and the people will be benefited if the oil prices are reduced. Living cost will be reduced too as decreased production cost will decrease prices in the market.