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abarrelfullabarrelfull wrote on 20 Sep 2010 09:07
Tags: india pakistan prices

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One of the biggest problems in doing business in the oil sector is the direct political interference in the business in some countries. This can have an impact even for those in other jurisdictions. For example, how does one predict demand trands, when many consumers prices are shielded from market conditions.

In 2008, we saw how subsidies and fixed prices, enabled demand in some countries to grow despite eye watering oil prices. Thus, the existence of price controls, even makes oil price forecasts impossible.

So the news that various markets are being liberalised is good news. In july, it was India, and now it is Pakistan.

With Punjab and remote areas in other provinces facing a severe shortage of petrol, mainly because of transportation problems and lack of storage, the government is expected to deregulate oil pricing on Tuesday and allow refineries to fix prices of petroleum products, except diesel, to improve their financial position.

Governments are being forced to act, to reduce holes in their budgets. They also need to take advantage of the current oil price situation. The most likely scenario for oil prices is a period of relatively stable prices followed by rising prices, perhaps once again to levels seen in 2008. The need to cut huge budget expenses would then clash with the sheer impossibility of doing so.

If only the gas guzzlers of the Middle East would follow suit, it would guarantee that oil has a longer and more positive future.

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