From Australia to India and onto the US, and in places in between, people are enjoying the benefits of reduction in the crude oil price. The notable exception has so far been Bangladesh. It is the same old story of revenue shortage, excessive subsidy, expenditure priority and the added appalling burden of quick rental power plants, writes Omar Khasru

IT WAS more than fifteen years ago. I was at a self-service Berkeley petrol pump (they call it gas station over there) in the United States with my ramshackle second hand Volkswagen. The petrol customarily cost less in self-service gas stations than the full-service ones, where someone else fills up the car tank.
It was a gas station cum small fast food joint that offered lowest priced gasoline in town. The owner came out and asked me if I could wait for a little while. I warily asked him why he wanted me to wait. He indicated that he was about to lower the petrol price. I gladly waited. Within minutes the price was reduced by 13 cents per gallon. I filled up the tank.
This is not wholly uncommon in the US. The retail gasoline price at the pump goes up and down depending on the crude oil price. The crude oil price since March and April of this year has shown a definite and striking downward slide. The US consumers, long suffering from the scourge of soaring cost of petroleum products, have welcomed this. They are elated by the precipitous price drop.
The trade deficit in the US in recent months narrowed because of falling crude oil prices. Retreating oil prices kept a lid on the value of US imports and inflation. Brent crude in London declined to $97.93 per barrel on July 8, down from a high of $126.22 on March 13, almost one-fourth price drop in less than four months.
I was watching one of the international all news TV channels about a week ago and an expert predicted that due to excess supply and waning demand the crude oil price will come down to around $70 per barrel in the foreseeable future. There is such acute and heightened need for revenue among OPEC and other oil producing countries that this is likely to happen, according to many analysts.
Russia, one of the biggest oil producers, for example, has set the annual revenue and expenditure estimates along with oil production goal on the premise that the average crude oil price will be around $115 per barrel during the current fiscal year. Now that the price has dwindled to far lower than that projected level, the country will have to produce and sell a lot more crude oil to meet the budgetary targets. That may well be a windfall for the buying countries and consumers.
The petrol price at the pumps in the US has lately been going down gradually. The retail price is heading towards and nearing $3 per gallon, down from $3.63 a year ago and over $4 per gallon in mid-2008. The US by far is the largest consumer of fuel oil. The slowdown and lack of US economic boom is a major factor for the downward trend in the crude oil and petroleum product prices.
Lower energy costs are always good news for growing economies such as India and Bangladesh. International oil and coal prices have come down significantly in the past few months. The price of a barrel of Brent crude, to which two-thirds of the world's oil varieties are benchmarked, has tumbled, as mentioned above, to under $100, falling almost as quickly as it did in late 2008.
The reason for this rapid decline is easy to explain. Since March, the world has produced more oil than it has consumed. Worldwide oil consumption has declined since last December, falling from 90.4 million barrels per day in December 2011 to 88.5 million barrels in April this year. At the same time, the supply has been climbing, enhanced by new finds in North America and a 10 per cent increase in production by the Organisation of Petroleum Exporting Countries.
The sharp fall in international oil prices has paved the way for reduction in petrol price in India by between Rs 2.46 to Rs 3.22 per litre on June 28. The latest price reduction follows Rs 2.02 a litre cut in prices on June 3, less than a month ago. This provides a much-needed relief to wary consumers. The price reduction might have been much greater but for the fall of Indian currency value against the US dollar. The rupee fell to a record low of 56 per dollar last month.
The two price cuts in close proximity have reversed more than half of the petrol price increase in India earlier this year. The record Rs 7.54 a litre hike in May, the biggest in the history, amidst high crude oil prices, has now been defused to a significant extent. The value of it is not only in price reduction but also in the concept of people getting ready relief and comfort from a favourable price factor.
Even after two quick and consecutive reductions, analysts feel that there is scope for cutting the rates further in India as the current revision was done at average international oil price rate in the first half of June. Global oil prices have fallen by around 8 per cent since then. The steady decline in crude oil price makes it both possible and imminent that another price reduction is in the offing, much to the satisfaction of the common people.
When the price of crude oil escalates, people suffer the consequences of higher gasoline price as well as ensuing increase in transport cost and commodity prices. Likewise with the steady and steep decline in the crude oil price the consumers should derive the resultant benefit and respite in terms of lower petroleum prices, diminished transport cost and reduced prices of essential commodities.
OPEC, the dreaded oil cartel, met a week earlier and decided to maintain output at current levels and not cut it as demanded by Iran. So, prices are likely to remain soft for now and in the foreseeable future barring a sudden crisis or extenuating circumstances. The consuming countries will benefit from the higher supply and lower consumption leading to lower prices.
That is exactly what is happening in the US, India and elsewhere. But there is no such attempt on the part of the Bangladesh government to lessen the suffering of the people and provide much needed relief to the beleaguered consumers by reducing gasoline and fuel oil prices.
The administration and officials here seem to be fixated by the notion of subsidy for various products and services, especially the quick rental power plants. They argue that the shortage of funds, cash crunch, extravagant price subsidy and ambitious development plans and projects preclude the possibility of impending gasoline price cut.
Like many other places, average price of unleaded petrol (high octane) fell to a 17-month low in Australia in early July. It was the seventh consecutive week in which the price of the commodity fell. The general trend is likely to continue a while longer. ‘The national average price has fallen by over 16 cents in two months and more importantly the price falls have ensured that household budgets are looking decidedly healthier,’ said a prominent economist (Sydney Morning Herald, July 2).
So, from Australia to India and onto the US, and in places in between, people are enjoying the benefits of reduction in the crude oil price. The notable exception has so far been Bangladesh. It is the same old story of revenue shortage, excessive subsidy, expenditure priority and the added appalling burden of quick rental power plants.
It is fully and rightly expected that the common people get the benefit when the price of crude oil declines and shows a definite downward trend. The excuse that the huge subsidy to imprudent money guzzling rental power plants rules out such price reduction in petroleum products is untenable and unfair.
The latest new addition for a readymade excuse for not to reduce petroleum product prices would be the planned Padma Bridge project from local resources and without substantial international funding. The government is on the lookout for new sources of massive funding for this massive and pricey project.
We, as consumers, need to be concerned about the mostly unpleasant ensemble of new surcharge and service charges, enhanced fees and taxes talked about to finance the Padma bridge project rather than feel overly optimistic about any reduction of prices to lessen the severe financial burden. The Padma Bridge is needed but a price relief is also sorely needed to calm the collective frayed nerves and provide much needed succour to struggling, suffering and besieged consumers.
Under the anxious and apprehensive circumstances, it is unlikely that the government is in any mood or condition to reduce the prices of fuel oil, no matter how low the price of crude oil gets in the international market. The administration has bigger fishes to fry. Along with the big-time subsidy to troublesome losing proposition of quick rental power plants, we now have the Padma Bridge project funding from domestic resources in the offing and on the horizon to mull and worry about.
You can stop dreaming and may well forget about any price reduction of petroleum products or anything else anytime soon. C’est la vie or such is life.