The unprecedented hike of global oil prices amid the Russia-Ukraine war has created huge pressure on state-owned Bangladesh Petroleum Corporation (BPC) as the state agency is incurring a loss Tk 350 million every day, officials said.
The state-run agency is now facing a loss of Tk 24 per litre on diesel sales and Tk 11 per litre on furnace oil sales.
“We may incur a loss of Tk 8 billion per month if such loss continues to occur,” an official of BPC said on the condition of anonymity.
He said BPC has incurred a loss of Tk 200-210 million two days ago. But the amount reached Tk 350 million on Monday. The BPC is not facing any loss on Octane import as it blending it with local production.
Another official said the BPC has paid the finance ministry Tk 10 billion recently as per the government’s requirement to send the profit previously it made from lower oil price during the first wave of Covid-19. Then the finance ministry asked to pay Tk 50 billion from BPC’s profit.
“BPC has informed the finance ministry that it will not pay the additional amount due to the surge in oil price and a fall in our profits,” he added.
Talking about the issue, Dr Moha. Sher Ali, Joint Secretary (Operation-1) of Energy and Mineral Resources Division said, “We are in huge pressure due to the overheated oil market. the ministry has already asked the Deputy Commissioners (DC) to take necessary steps to stop oil smuggling through the border areas.”
Prof M Tamim, an energy expert and teacher of petroleum of BUET, told the Daily Sun that the oil prices may reach to $200 per barrel.
“We should introduce rationing on oil consumption and look at the use of furnace oil in electricity production and diesel consumption in agriculture and transport sectors,” he noted.
He also said the prices of most of the essential commodities will increase drastically due to Russia-Ukraine war.
Agencies add: Oil prices soared above $130 a barrel in early trading on Monday, their highest since 2008, after the US said it is considering banning the import of Russian crude and is discussing such a move with its European allies, in a bid to freeze the world's second largest energy exporter out of global markets and isolate Moscow economically for its military offensive in Ukraine.
Brent, the global benchmark for two thirds of the world's oil, hit $139.13 a barrel and West Texas Intermediate (WTI), the gauge that tracks US crude, jumped to $130.50 in early trading.
Both key benchmarks receded by 9.09am UAE time, but remained high, with Brent up 10.43 per cent at $130.4 per barrel and WTI 9.19 per cent higher at $126.3.
Brent hit a record high of $147.02 on July 11, 2008 amid the global financial crisis, while WTI soared to $146.90.
"We are now in very active discussions with our European partners about banning the import of Russian oil to our countries, while of course, at the same time, maintaining a steady global supply of oil," US Secretary of State Antony Blinken said in an interview on NBC's Meet the Press show.
Oil prices could hit $180 a barrel and cause a global recession, according to Japan's largest lender MUFG Bank.
"Should the prevailing Russia-Ukraine conflict intensify in the coming weeks and broaden to include energy sanctions, we would be increasingly convicted that the sheer velocity of Russian crude and refined products exports off the table would march the front end of the oil price curve to $180 a barrel by the summer if not earlier," said Ehsan Khoman, head of emerging markets research at MUFG.
Oil prices at such levels will lead to demand destruction and consumer energy spending plummeting, which happened in the early 1980s and mid-2000s, leading to global recessions in 1982 and 2009.
"The prospect of history repeating itself is substantial," Mr Khoman said.
The world could be on the brink of an energy crisis rivalling the 1970s, according to Daniel Yergin, vice chairman of IHS Markit and a renowned author and energy market historian.
“This is going to be a really big disruption in terms of logistics, and people are going to be scrambling for barrels,” Mr Yergin said last week. “This is a supply crisis. It’s a logistics crisis. It’s a payment crisis, and this could well be on the scale of the 1970s.”
In addition to the US rattling markets with its announcement, oil prices also rallied as Moscow "inserted some hefty last-minute demands on the US in the small print of the almost-finished Iran nuclear deal," said Jeffrey Halley, senior market analyst at Oanda. "With the latter in jeopardy, and the former sure to lead to higher domestic prices, it is no surprise that Asian traders, a region heavily reliant on imported energy, pushed the panic button."
On Saturday, the International Monetary Fund said the Russia-Ukraine conflict and the sanctions imposed on Moscow as a result, will have a "severe impact" on the global economy.
The continuing conflict has already driven up energy and commodity prices, adding inflationary pressures from supply chain disruptions and sending a wave of more than one million Ukrainian refugees to neighbouring countries. "While the situation remains highly fluid and the outlook is subject to extraordinary uncertainty, the economic consequences are already very serious," said Kristalina Georgieva, the IMF's managing director.
"The sanctions on Russia will also have a substantial impact on the global economy and financial markets, with significant spillovers to other countries."
In 2020, Russia produced about 10.2 million barrels a day of crude oil and natural gas condensate, placing it second after the US, with Saudi Arabia in third place, according to the 2021 BP Statistical Review of World Energy. It is also the second-largest producer of natural gas in the world. Russia is also a major producer of metals including aluminium, platinum, copper and palladium, and their prices have climbed because of the crisis.
Multi-year high oil prices have already raised transport costs, exacerbating already high inflation levels that are driving up the prices of basic goods and denting the tentative growth of the global economy that was just recovering from the Covid-19 pandemic.
After rallying 60 per cent last week, wheat prices are at their highest since 2008 on concerns that the Russia-Ukraine conflict will disrupt supplies from two major breadbaskets. Wheat futures on the Chicago Board of Trade (CBOT) rose more than 7 per cent on Monday. Combined, the Ukraine and Russia export 29 per cent of the world’s wheat through the Black Sea, where many shipping firms have suspended operations after attacks on cargo ships.
Meanwhile, corn futures which gained 15 per cent last week are up 3 per cent and soybeans gained more than 1 per cent.
Metals have also rallied with Aluminium, which gained 15 per cent last week on the London Metal Exchange, rising to a record $4,000 a tonne on Monday receded to $3,930. Nickel, which increased 19 per cent last week, was up 17 per cent on Monday to $33,820 a tonne.
Russia produces about 6 per cent of the world's aluminium, about 7 per cent of global nickel and around 3.5 per cent of copper.
Gold, the precious metal that is a traditional safe haven, hit $2,000 an ounce on Monday and receded to $1994.9 an ounce on the CBOT at 8.57am UAE time.
The conflict in Ukraine could reduce the level of global gross domestic product by 1 per cent by 2023, or about $1 trillion, and add up to 3 per cent to global inflation in 2022 and about 2 percentage points in 2023, said the UK’s National Institute for Economic and Social Research.
Western sanctions on Russia have targeted its central bank, disconnected its key banks from the global Swift payments network and banned the country from doing business in the US dollar, euro, yen and pounds. Punitive measures against Russia also include freezing Moscow's assets and denying it access to western financial markets, curtailing its ability to raise funding.
The Moscow stock exchange was closed all of last week after it fell more than 45 per cent before closing 33 per cent lower the last week of February, making it the fifth-worst plunge in stock market history. The country's rouble was trading at 112.5 to the US dollar on Monday, well beyond its 75 range to the greenback. Year to date the currency is down about 50 per cent.