Pakistan’s stock market takes a beating after global oil price crash

KARACHI: Pakistan’s stock market was down on Tuesday with oil and gas recording a major dip after international oil prices crashed to below zero.
Experts, however, are optimistic that the country could benefit from the historically low oil prices.
The Pakistan stock exchange’s benchmark KSE-100 index was down by more than 3 percent or 1,131 points by afternoon trade as investors weighed heavily on an unprecedented meltdown in the international oil market where oil prices crashed through zero, closing at -$37 per barrel.
“The market is in pressure today due to the international oil prices as the uncertainty about the oil futures prevails. Otherwise, the market was bullish,” Abdul Azeem, Head of Research at Spectrum Securities, said.
He added that the impact of the “global oil prices’ decline” is reflected in the oil and gas shares which are taking “a major hit today”.
On Monday, the US trade of West Texas Intermediate (WTI) for May delivery fell more than 300% to $37.63 a barrel.
It marks the first time in history that crude oil has plunged to below zero, mainly due to disruptions caused by the coronavirus outbreak and a price war between Saudi Arabia and Russia.
“The prices for WTI reflect the contract for May, which expires this week. The crash reflects that the traders are leaving the May contract, and moving on to June. This is the theoretical value, and when the buying starts again, it will go up,” Tahir Alam, General Secretary, Petroleum Club of Pakistan, said.
Experts say the turn of events could be good news for Pakistan by drastically reducing its oil import bill.
“The oil prices are declining due to a lack of demand and oversupply as more than 200 million barrels of oil are oversupplied. Lack of storage capacities, high-handling costs force producers to sell the oil at throw-away prices,” Masood Siddiqui, former CEO of Pakistan’s energy giant Oil and Gas Development Company OGDC, told Arab News.
He added that the situation could turn Pakistan’s current account into surplus and “render exports competitive after energy cost cuts”.
Pakistan’s petroleum products’ imports declined by 39.2 percent to $668 million in March 2020 when compared to those recorded last month, while the country imported $8.9 billion worth of oil which is 16 percent down during the July- March period of the current fiscal year FY20, according to the Federal Bureau of Statistics (FBS).
Siddiqui, who is also a veteran petroleum expert, predicts that the depressed oil price scenario will last for at least three years.
“The countries exporting oil would take a major hit… while those importing the commodity could benefit from the situation that is expected to stay at least for three years,” Siddiqui said, adding that thousands of oil companies in the US “may go bankrupt” after failing “to pay back their investors and creditors.”
Commenting on the future of Pakistan’s exploration and production companies, the former OGDC head said that the price floor and ceiling mechanism in the Petroleum Exploration & Production Policy 2012 protects their interests in the South Asian country.
Pakistan’s shares on Monday posted more than 2 percent gains as investors weighed the positive outcome of the central bank’s surprise rate cut by 2 percent on leveraged scrips, a decision by G20 creditors to defer $12 billion payments through a debt relief fund, and the IMF’s approval for a $1.4 billion economic support during the coronavirus pandemic, and the stability of the rupee against the dollar.