Global Fuel Prices Fall, Yet Bangladesh Raises Prices of All Fuel Types!

 ❐ Staff Reporter

---

Crude oil prices in the international market have started to decline from recent highs. On September 10, the price of Brent crude rose to $107.63 per barrel. On Friday, it fell to $104.87.

And this Monday morning, the price of Brent fell further to around $102. At the same time, the price of crude oil or WTI in the US market also fell below $100.

Amidst the trend of falling oil prices in the global market, the prices of diesel, petrol, octane and kerosene have been increased by Tk 20 per liter in Bangladesh. The Energy and Mineral Resources Department announced the new prices on Sunday.

The new prices have come into effect from Monday. According to the new decision, the price of diesel has increased from Tk 115 to Tk 135, octane from Tk 145 to Tk 165, petrol from Tk 140 to Tk 160 and kerosene from Tk 135 to Tk 155.

In other words, while the price of Brent in the international market has decreased by about 5 percent compared to September 10, the price of fuel oil for consumers in the domestic market has increased by about 17 percent.

However, the current international market price is also much higher than the previous year and the market is still unstable due to the conflict in the Middle East. As a result, retail prices in Bangladesh are not determined by considering only one-two days’ international price.

What is happening in the international market?

According to Reuters, Brent crude prices rose 6.34 percent to $107.63 per barrel on September 10. Prices rose that day on fears of conflict in the Middle East and renewed supply crunches over oil transportation.

The market then recovered somewhat. On September 18, Brent prices fell to $104.87. Then, on Monday morning, the price of Brent for November delivery fell to $102.09.

This means that in just a few days, the price has dropped by about $5 from its latest high. The price of WTI has also fallen below $100.

Reuters says that the prospect of diplomatic efforts to resolve the conflict in the Middle East and hopes for a partial normalization of oil supplies from Saudi Arabia have brought some relief to the market, reducing the excess risk on oil prices.

However, this cannot be called a major decline as oil prices are still above $100 in the international market. Rather, it is a slight correction from recent highs.

What is the reason for the increase in prices in the country?

The government has said that Bangladesh Petroleum Corporation (BPC) is facing huge losses due to the significant increase in fuel oil prices and transportation costs in the international market.

According to the Department of Energy and Mineral Resources, BPC’s losses in the six months from March to August were approximately Tk 22,876 crore.

Earlier, fuel prices were kept unchanged in September. At that time, diesel was being sold at Tk 115, octane at Tk 145, petrol at Tk 140 and kerosene at Tk 135 per liter. As a result, fuel prices remained the same for four months before the new prices came into effect.

According to the government’s calculations, the price hike will reduce BPC’s losses and reduce pressure on foreign exchange. At the same time, the government has argued that it will also reduce the risk of smuggling that arises due to the high price of fuel oil in the domestic market compared to neighboring countries.

If international prices fall, when will the domestic market fall?

Fuel oil prices in Bangladesh do not fluctuate directly on the same day as international market prices. In 2023, the government introduced a formula-based price adjustment system. Under this system, prices in the domestic market are adjusted by considering various factors including international market prices and import costs.

As a result, if the price drops slightly in the international market today, it will not be reflected in the country’s pumps the next day. On the other hand, if the price increases in the international market, the impact of import, transportation and other costs also affects the price.

In deciding to increase prices this time, the government has taken into account not only the price of crude oil, but also the increase in shipping and transportation costs due to the conflict in the Middle East. According to the Department of Energy, international fuel prices have increased significantly compared to March.

Pressure on the consumer

The impact of the new price hike of 20 taka of diesel will not be limited to the fuel cost of private cars or motorcycles. A large part of the country’s transportation, agriculture, power generation and industry depend on diesel.

Bangladesh uses about 4.35 million tons of diesel annually, which is about 64 percent of the total petroleum fuel consumption. About 60 percent of this is used in the transportation sector, 15 percent in agricultural irrigation, 10 percent in power generation, and about 5 percent in industry.

As a result, an increase in diesel prices could impact transportation costs, freight transportation, agricultural production, and industrial operating costs. There is a risk that a portion of that additional cost will later be added to the prices of goods and services.

On the other hand, according to the government, before the price hike, BPC’s daily loss on diesel sales alone was around Tk 109 crore. The government believes that BPC’s losses could be reduced by around Tk 10,000 crore annually if the new price is implemented.

In other words, although oil prices have decreased slightly in the international market in the past few days, the decision to increase prices in Bangladesh is based on the high import costs, transportation costs and large losses of BPC in the previous few months.

However, if prices in the international market fall further, the important question now is when will domestic consumers receive the benefits of that reduction.