PRESENTED BY :~ 1 – Syed Ghazanfar -60911 2 – Sharjeel Mateen -60738 3 – Waleed Hafeez -60650

TEACHER NAME :~

Sir Naveed Wahid Awan

PresentationMicro & Macro Economics

TopicImpact of Oil Prices on the Economic Growth of Pakistan

Overview

Introduction Objective of study Data Collection/Methodology Recent overview of crude oil Reason for Decline in Oil Price Oil Importing Countries Oil Prices & Economy of Pakistan Oil Prices & Major Consumers Policy Implication Conclusion

Introduction

Crude Oil, often called “black gold” is naturally occurring, unrefined petroleum product composed of hydrocarbon deposits.

Trade of crude oil across the globe is one major factors in determining the G.D.P and financial policies of various countries across the globe

Crude oil exporting countries prefer to sell it for higher prices because it helps them to increase their foreign reserves to control inflation

Oil is a crucial economic input and Pakistan’s growth, production levels, and price levels are affected significantly by oil price volatility.

Objective of Study

Analyze the relationship between oil price and real GDP growth of Pakistan

Analyze the relationship between oil prices and its impact on different industries

Analyze the relationship between oil prices and its impact on Pakistan stock market

Data Collection/Methodology

Data collected from different researches, Ministry of Finance, Fifty Year Economy of Pakistan, World Development Indicators (WDI), different volumes of Pakistan Economic Survey & State bank of Pakistan (SBP)

Data for oil price was retrieved from International Financial Statistics issued by International Monetary Fund

We put this data in excel sheet & draw tables & graphs

Recent overview of crude oil

Oil prices fell sharply in the second half of 2014.

Four-year period of stability around $105 per barrel.

From June 2014, the global oil prices started a trend of downward shift.

From $115 per barrel it touched a low of $45 per barrel in Jan 2015.

This decline being the largest since the 2008 decline when prices fell from a whooping $145.85 per barrel to $32 per barrel.

2005 2006 2007 2008 2009 2010 2011 2012 2013

50.59

61

69.04

94.1

60.86

77.38

107.46 109.45105.87

World Oil Prices

Nominal Value

Year

Aver

age

Pric

e in

USD

/Bar

rel

Reason for Decline in Oil Price

Technological shift from vertical to horizontal drilling in US led to it becoming a producer from a consumer.

Major boom in shale gas production causes the production increase by 0.9 million barrel per day.

Between July and Dec 2014 alone, the projected oil demand for 2015 is downwards by 0.8 million barrel per day.

The US is producing record amounts of oils plenty of supply out of OPEC and Russia. But there’s not enough demand.

Oil Importing Countries

There are three main channels through which a decrease in the price of oil affects oil importers.

The first is the effect of the increase in real income on consumption.

The second is the decrease in the cost of production of final goods, and in turn on profit and investment.

  The third is the effect on the rate of inflation.

Oil Prices & Economy of Pakistan

Pakistan is semi-industrial economy which is mainly in chemical, textile, agriculture, food processing etc.

Pakistan has imported oil from Middle East. Pakistan import crude oil and refines the oil locally for the consumption Our economy totally depends on oil import to run its economic mechanism Falling price of oil in international market should be seen as a blessing for a

country like Pakistan

Oil Prices & Economy of Pakistan

Declining prices encourages OGRA to issue new licenses to 13 new oil marketing companies

It brings new investment in the Pakistan Pakistan produced 80,800 barrels/day in 2013, it increases to 110,000

barrels/day in 2015 Increase in production help to cut the import for Pakistan Reduced import bill helped to maintain the foreign reserve to reduce trade

deficits of Pakistan

2005 2006 2007 2008 2009 2010 2011 2012 20130

50

100

150

200

250

300

350

400

450

500

65.63 65.67 65.19 58.58 55.3765 65 72 80.8

336.19357.08

382.26 389.75 390.94 392.3

418440.11 437.06

Crude Oil Consumption & Production in PakistanProduction Consumption

Years

Thou

sand

s of

Bar

els/

Day NET IMPORT

Oil Prices & Economy of Pakistan

State Bank of Pakistan is enjoying fall in oil prices by saving foreign reserves

It is also reducing pressure on the declining value of the Pakistan’s Rupee

In February, IMF noticed GDP growth of 4.7% for Pakistan

It happens due to saving of $4billion saving in oil import bill

It help to control Inflation Rate & Foreign Reserves

2005 2006 2007 2008 2009 2010 2011 2012 2013

7.7

6.2

4.8

1.7

2.8

1.6

2.8

4

4.4

GDP Growth Rate of Pakistan

GDP Growth Rate of Pakistan

Year

Paki

stan

's G

DP

Gro

wth

%

Oil Prices & Economy of Pakistan

Pakistan is agricultural country and its agriculture contributes 24% of GDP Falling oil prices also helped the farmers to pay less (40%) for the fuel and

electricity bills NEPRA reduces the Rs3.24 per unit of electricity, It is a big relief for people Decline in oil prices also influence the stock market of Pakistan especially for

the PSO One major impact of decreasing oil will be reflected in CPI inflation

Oil Prices & Major ConsumersINDUSTRY IMPACT

Power Positive

Paints Positive

Chemical Positive

Autos Positive

Cement Positive

General industries Positive

E&P and OMC Negative

12%

36%

4%

48%

Major Oil Consumers

Indusrial Sector Energy Sector Residential Transport Sector

Policy Implication

Enhance the positive effects of oil prices in reducing inflation by speeding up price pass through.

Put in place instruments to smooth the effects of price changes. Reduce oil price subsidies or increase taxes – which is good in economic and

environmental terms Reduce fiscal deficits Introduce less monetary tightening than would have been the case without the oil

price decline Reduce energy intensity or diversify trade and production to reduce the economy’s

dependence on volatile oil prices

Conclusion

Impact of Oil Prices influences the economy at two level, macro level and micro level.

At macro level it helped to reduce inflation, trade deficits (reduces import bill), production cost of electricity, transportations fares and increase revenues generation by increasing sales tax.

At micro level it increase the purchasing power of the households, reduced prices of household commodities and cheaper electricity per unit rates for household consumption.

Current fluctuation in price of crude oil has positive impact on the economy of Pakistan.