Bangladesh failing to cash in on cheap oil price due to lack of storage
If the oil price continues to remain low, Bangladesh would enjoy a low price rate on its monthly supply
With the outbreak of coronavirus, the international oil price has drastically fallen by 40 percent to $30 per barrel of crude oil in just one month. Unlike many other countries, however, Bangladesh is unable to take major advantage of it.
The United States plans to buy 77 million barrels of oil from late March. This move is part of a plan to buy large amounts of crude to replenish the Strategic Petroleum Reserve (SPR), as announced by US President Donald Trump. This will be done to take advantage of low oil prices, according to Bloomberg.
According to LiveMint, India is also planning to take advantage of low oil prices to top up its SPR. LiveMint quoted its source saying that the Indian oil ministry is seeking a fund of $673 million to purchase extra oil.
But for Bangladesh, such initiatives are a far cry as the Bangladesh Petroleum Corporation (BPC) does not enjoy the freedom to buy oil instantly and it does not have a sizeable oil storage facility in which it can keep the extra oil.
The BPC last month imported per barrel of crude oil at a rate of $56 and diesel oil at $45.
BPC Chairman Md Shamsur Rahman said, "Every time we buy oil, we need approval from the economic council of the government. Without this approval, the BPC cannot just go to the oil market and take the advantage."
Secondly, the corporation does not have the facility to store the fuel, he added.
Half of Bangladesh's oil import comes through annual government-to-government (G2G) agreements and the remaining through open tenders.
Under these deals, Bangladesh receives roughly 4 lakh tonnes of oil every month.
The import price is set by a formula known as "Platts rate," where the rate is fixed on the basis of an average price of two days before and two days after the date of procurement. Besides, there is a shipment cost plus a royalty charge that has to be paid to the supplier and its unofficial local agent.
Under such an arrangement, if the oil price continues to remain low, Bangladesh would enjoy a low price rate on its monthly supply. But it would not be able to build any SPR.
Bangladesh can store 13 lakh (1.3 million) tonnes of fuel in different depots across the country. This is equivalent to 45-50 days' demand.
The country's daily demand for fuel is 18,000 tonnes. Diesel tops the demand.
"We have only one and a half month of storage capacity. But building more storage capacity will be very expensive for us. It has to be a natural storage capacity," said Professor Dr Mohammad Tamim, pro-vice-chancellor of Brac University.
The government had last fixed fuel prices in 2016 when the price of per barrel crude oil was $43.13 and per barrel of diesel was $50.31.
Given the low import price trend now, the BPC is making a profit of Tk20 crore (or $2.3 million) per day from its sales to the local market.
According to Md Sarwar Alam, BPC Director (Operation and Planning), while the crude oil price has decreased, the price of refined oil – which is 79 percent of the total import – remained the same.
"The benefit is not so big for BPC because we incurred huge losses when the oil price was higher in the last three years," said Alam.
In the last three years, oil prices fluctuated between $50 and $77 per barrel.
"During that time, BPC was incurring losses of around Tk16-20 crore per day," Alam added.
In 2018, BPC imported a total of 52.19 lakh tonnes of oil which included 10.79 lakh tonnes of crude and 41.39 lakh tonnes of refined fuel.