Real GDP increases 2.9%

Real GDP rose 2.9% in the third quarter of 2007 (Chart 1). Domestic demand growth remained solid, with real final domestic demand and inventory investment both contributing to the gain. The increase in real final domestic demand outpaced that of real GDP for the 11th time in the last 12 quarters as real imports rose more than real exports.

Consumer spending stays healthy

Real consumer expenditure grew 3.0% in the third quarter of 2007, following a gain of 5.9% in the previous quarter. Spending on semi-durable goods and services (notably net spending abroad) increased, while that on durable goods (especially automotive products) and non-durable goods fell.

Gains in income growth have supported household spending. Personal income increased 1.1% in the quarter. Supported by higher employment, labour income rose 1.9%, albeit a slowdown from 7.2% in the second quarter. This slowing reflected the end of Quebec government pay equity payments and special contributions from the Newfoundland and Labrador government to its Public Service Pension Plan. These factors had boosted labour income in the first half of 2007.

In the third quarter, real personal disposable income rose 2.4% and per capita real personal disposable income increased 1.1%. The personal savings rate was 1.3%, down from 1.6% in the second quarter.

Oil Prices: A Year After a Record $145, Gloom Prevails

Friday is the one-year anniversary of crude oil’s record close of $145 a barrel. But commodity traders were in no mood for a party.

Oil prices dropped more than $2 a barrel to below $67 in trading in New York Thursday, beaten down by dismal economic news and word that the Organization of Petroleum Exporting Countries discipline is shaky.

First news out of the U.S., the world’s largest consumer of crude oil: the unemployment rate is up to 9.5%, the highest since Ronald Reagan’s first term in office; and the federal government reported payrolls tumbled. Our Dow Jones Newswires colleague noted there were “widespread declines across manufacturing, construction and professional services, a grim reminder that the path to economic recovery will be bumpy.” (Sub. req’d.) The jobless rate in the Eurozone is also at 9.5%, a 10-year high. More unemployment means more insecurity, less spending and less fossil-fuel consumption.

But this might not even be the worst news for oil bulls. Months of big OPEC production cuts have been a primary factor for the sweeping recovery in crude prices. But that hardnosed disciplined is wavering as a steady stream of increased production from some of the cartel’s members quietly enters the market.

A Dow Jones Newswires’ survey Thursday shows output from OPEC’s 11 quota-bound members rose a third straight month in June. Led by Iran and Venezuela, output was up almost 300,000 barrels a day, or 1%, compared with March.

OPEC compliance with a trio of large output reductions announced late last year is now at 76%, down seven percentage points, since March, according to the survey. Some other industry reports though have OPEC compliance near just 70%.

“Creeping OPEC production serves to underscore the underlying weakness (of the market) and that (prices) likely got ahead of themselves,” says PFC Energy analyst David Kirsch.

Moody’s, the credit rating agency, says Thursday its forecast for the global integrated oil industry is “negative” as it expects economic recovery in 2010 to be “slow and painful, crimping worldwide demand for oil and natural gas at a time when inventories are near record highs.”

Of course, it bears repeating that weakness in crude-oil markets doesn’t mean strength for renewable sources of energy. Biofuels as well as wind and solar still need energy prices to be high to help them claw their way to profitability. A collapse in oil prices will be bad news for boosters of carbon-lite fuel.

petroleum

Natural mineral oil, a thick greenish-brown flammable liquid found underground in permeable rocks. Petroleum consists of hydrocarbons mixed with oxygen, sulphur, nitrogen, and other elements in varying proportions. It is thought to be derived from ancient organic material that has been converted by, first, bacterial action, then heat, and pressure (but its origin may be chemical also).

From crude petroleum, various products are made by fractional distillation and other processes; for example, fuel oil, petrol, kerosene, diesel, and lubricating oil. Petroleum products and chemicals are used in large quantities in the manufacture of detergents, artificial fibres, plastics, insecticides, fertilizers, pharmaceuticals, toiletries, and synthetic rubber.

Petroleum was formed from the remains of marine plant and animal life which existed many millions of years ago (hence it is known as a fossil fuel). Some of these remains were deposited along with rock-forming sediments under the sea where they were decomposed anaerobically (without oxygen) by bacteria which changed the fats in the sediments into fatty acids which were then changed into an asphaltic material called kerogen. This was then converted over millions of years into petroleum by the combined action of heat and pressure. At an early stage the organic material was squeezed out of its original sedimentary mud into adjacent sandstones. Small globules of oil collected together in the pores of the rock and eventually migrated upwards through layers of porous rock by the action of the oil's own surface tension (capillary action), by the force of water movement within the rock, and by gas pressure. This migration ended either when the petroleum emerged through a fissure as a seepage of gas or oil onto the Earth's surface, or when it was trapped in porous reservoir rocks, such as sandstone or limestone, in anticlines and other traps below impervious rock layers.

The modern oil industry originates in the discovery of oil in western Ontario in 1857 followed by Edwin Drake's discovery in Pennsylvania in 1859. Drake used a steam engine to drive a punching tool to 21 m/68 ft below the surface where he struck oil and started an oil boom. Rapid development followed in other parts of the USA, Canada, Mexico, and then Venezuela where commercial production began in 1878. Oil was found in Romania in 1860, Iran in 1908, Iraq in 1923, Bahrain in 1932, and Saudi Arabia and Kuwait in 1938.

The USA led in production until the 1960s, when the Middle East outproduced other areas, their immense reserves leading to a worldwide dependence on cheap oil for transport and industry. In 1961 the Organization of the Petroleum Exporting Countries (OPEC) was established to avoid exploitation of member countries; after OPEC's price rises in 1973, the International Energy Agency (IEA) was established in 1974 to protect the interests of oil-consuming countries. New technologies were introduced to pump oil from offshore and from the Arctic (the Alaska pipeline) in an effort to avoid a monopoly by OPEC. Global consumption of petroleum in 1993 was 23 billion barrels.

As shallow-water oil reserves dwindle, multinational companies have been developing deep-water oilfields at the edge of the continental shelf in the Gulf of Mexico. Shell has developed Mars, a 500-million-barrel oilfield, in 900 m/2,940 ft of water, and the oil companies now have the technology to drill wells of up to 3,075 m/10,000 ft under the sea. It is estimated that the deep waters of Mexico could yield 8–15 million barrels in total; it could overtake the North Sea in importance as an oil source.

Petrol prices hit record high and could increase even more

Petrol prices look set reach £6 per gallon, and rising. Photograph: Graham Turner

The following correction was printed in the Guardian's Corrections and clarifications column, Tuesday 13 April 2010

This sentence read as though it was expressing national totals: "Supermarkets operate just 1,200 of the 10,000 petrol stations in the UK, but they account for an average of 12m litres of the 14.5m litres of petrol sold each year." What the writer meant was that each of the 1,200 supermarket sites sold an annual average of 12m litres, and the others each sold 2.5m litres a year

Petrol prices reach £5 a gallon

The average motorist could soon be paying more than £2,600 a year to fill up their car, swallowing almost 15 per cent of the average take-home pay, a survey predicted.

Figures compiled by the AA showed that on Tuesday the national average price for a litre of unleaded petrol rose to 110.2p, or £5.01 a gallon. Diesel now costs 120.51p, or £5.48 a gallon.

Edmund King, the president of the AA, described the record high as "the latest milestone along a miserable road of increasing fuel prices this year".

Soaring costs of crude oil, caused by increased demand from developing countries such as China and India, have pushed up petrol prices by almost 20p a litre since this time last year.

Meanwhile, oil companies have been accused of ripping off motorists after BP and Shell announced record profits totalling more than £7 billion for the first three months of this year.

But a comprehensive study by uSwitch.com, the comparison website, suggests much worse is to come. Many analysts have suggested that by next year petrol could cost 150p per litre, meaning the average car would cost £84 to fill, compared with £49.22 last year.

For a motorist driving 12,000 miles a year, that equates to £2,636 in annual fuel bills – £706 more than this year.

Even smaller cars, such as Ford Fiestas, would cost £1,792 a year to fill up, while a luxury saloon such as a Mercedes C-Class would cost £4,190.

The average net salary in 2009 is predicted to be £19,167, meaning the average car will guzzle 14 per cent of take-home pay in fuel bills alone.

Ann Robinson, of uSwitch.com, said: "Unfortunately the outlook for drivers is bleak. This latest blow could be enough to force some drivers off the road altogether. As a direct result of these price hikes, it would be no surprise to see more motorists leaving their car at home and using other methods of transport.

"However, drivers who are reliant on their cars for business or live in remote areas will be hardest hit - for them, leaving the car at home is not an option."

Gordon Brown is under increasing pressure to scrap a 2p increase in fuel duty planned for October or even to cut fuel duty after hauliers warned that hundreds of companies would go out of business if the price rises continued.

Petrol Prices

Since March 1983 I have kept a detailed record of fuel prices and fuel consumption, spanning fourteen different cars, both privately-owned and company. This table records the movement in fuel prices over that period, taking in each year the first fuel purchase in March. Prices are for leaded 4-star up to 1988, and unleaded thereafter. This roughly corresponds to the point when unleaded took over from 4-star as the standard fuel.

The table shows that the price of fuel in real terms is now 15% higher in March 2010 than in 1983, the oil price having risen steadily since March 2009, and the price also having been affected by the weakness of the pound against the dollar. The real terms price is now a record for the period covered, and is over 50% higher than in 1990. During the period covered by the table, "real" fuel prices fell between 1983 and 1992, encouraging a boom in road traffic, but then rose sharply due to the "fuel duty escalator", resulting in the fuel protest of 2000. At this time, fuel prices had risen by over 50% in five years, which undoubtedly caused much hardship.

Petrol Prices 1983-2010
Year	Price per Litre (p)	Price per Gallon (£)	Retail Prices Index	Petrol Price in constant terms (1983=100)	5-year % increase ¶
1983	36.7	1.670	83.1	100.0	-
1984	38.7	1.759	87.5	100.0	-
1985	42.8	1.946	92.8	104.3	-
1986	38.2	1.737	96.7	89.4	-
1987	37.8	1.719	100.6	85.0	-
1988	34.7	1.578	104.1	75.4	-5.5
1989	38.4	1.746	112.3	77.4	-0.7
1990	40.2	1.828	121.4	74.9	-6.1
1991	39.5	1.796	131.4	68.0	3.4
1992	40.3	1.832	136.7	66.7	6.6
1993	45.9	2.087	139.3	74.6	32.3
1994	48.9	2.223	133.1	77.6	27.3
1995	50.9	2.314	147.5	78.1	26.6
1996	52.9	2.405	151.5	79.0	33.9
1997	57.9	2.632	155.4	84.3	43.7
1998	60.9	2.769	160.8	85.7	32.7
1999	61.9	2.814	164.1	85.3	26.6
2000	76.9	3.496	168.4	103.3	51.1
2001	77.9	3.541	173.1	101.8	47.2
2002	69.9	3.178	174.5	90.6	20.7
2003	77.9	3.541	179.9	98.0	27.9
2004	77.9	3.541	184.6	95.5	25.8
2005	79.9	3.632	190.5	95.0	3.9
2006	88.9	4.041	195.0	103.2	14.1
2007	87.9	3.996	204.4	97.4	25.6
2008	103.9	4.723	212.1	110.9	33.4
2009	89.9	4.087	211.3	96.2	15.4
2010	111.9	5.087	220.7	114.8	40.1

The table also does not show peak prices in my local area, which were 224.6p/gallon (49.4p/litre) in October 1990, following the Iraqi invasion of Kuwait, and 390.5p/gallon (85.9p/litre) in June 2000, just before the fuel protest. Around this time I even paid 404.1p/gallon (88.9p/litre) in the Scottish Highlands. It seems that peak prices tend to occur in the autumn, and March, just as winter demand is tailing off, is often a low point in the year.

In 2005 there was a marked rise in the international price of oil, leading to a peak price of 426.9p/gallon (93.9p/litre) in September and October. Also since the beginning of March 2008 there was a further sharp spike in the international oil price, with unleaded reaching a startling peak in July of 540.5p/gallon (118.9p/litre). Recently, the price has continued to increase after the beginning of March, with my most recent fill-up having been at a personal record of 545.1p/gallon (119.9p/litre).

Is petroleum price too high in Pakistan?

Whether petrol prices are too high or not is a matter of common debate. In the recent past the prices of petrol are frequently changing, sometimes increasing and at other times decreasing though by a margin of Re. 1/2 to 1 Re. on either side, but generally the prices have arranged around Rs. 30-33/ liter.

Importance of petrol in daily life is quite apparent. Petrol is a strategic fuel for economic life line. Its price affects cost of production in a variety of ways as with the increase in its prices, cost of transportation of import, export and goods for local consumption goes up. Besides air, rail, road and sea transportation rates rise with the escalation in the price of petroleum.

This article examines the question whether the price of super petrol which has been fixed by the govemment till recently and now by the petroleum cos. is too high in Pakistan in comparison with other countries keeping in view their respective per capita incomes.

For this study, we have relied on figures available for the World Bank, "2001 World Development Indicators" and World Development Report 2000-2001 for GNP per capita measured at purchasing power parity rate basis in $ for 1999 and super petrol price in $/liter for Pakistan and other selected countries.

RATIO BETWEEN PETROL PRICES AND PER CAPITA INCOME (of 10 Lowest Oil Price Countries)
.	Country	Petrol prices ($/liter)	Pakistan rupees @ Rs. 60/$	Per capita income at PPP (PCI)	PCI equivalent to liters petrol	How many times is the price of petrol more expensive in Pakistan
	Pakistan	0.53	31.80	1757	3315	—
1.	Turkmenistan	0.02	1.20	3099	154950	47
2.	Iraq	0.03	1.80	NA	NA
3.	Iran	0.05	3.00	5163	103260	0.31
4.	Vietnam	0.12	7.20	1755	14625	4
5.	Indonesia	0.17	12.00	2439	14347	4
6.	Ghana	0.20	12.60	1793	8965	3
7.	Kuwait	0.21	12.60	NA	NA	—
8.	Yemen	0.21	12.60	688	3276	0.98
9.	Saudi Arabia	0.24	14.40	NA	NA	—
10.	UAE	0.25	15.00	NA	NA	—
Source: "2001 World Development Indicators", World Bank.

In order to work out how much oil is more or less expensive in Pakistan than other countries, we divide per capita income by petrol price (in $) to arrive at the quantity of petrol liters which can be purchased.

The above-mentioned countries are the countries with the least expensive petrol in the world ranging between $ 0.02 to 0.25 per liter which means the prices of petrol in Pakistan are more expensive by 27 times to 2 times without regard to their purchasing capacity, i.e. their per capita income. If their per capita incomes are taken into account, the prices of petrol in Pakistan would became still more expensive to a ratio between 47 times for Turkmenistan and 31 times for Iran.

Many of the above mentioned 10 countries are also petroleum producing countries and hence could afford to keep prices down. The petrol price in Turkmenistan is only 3.77% of the price of in Pakistan with due weight given to their respective per capita incomes or Pakistan petrol price is 47 times more expensive than in Turkmenistan.

In the following table the price of petrol in Pakistan is compared with the top ten most expensive fuel countries along with their per capita incomes.

RATIO BETWEEN PETROL PRICE AND PER CAPIA INCOME (with 10 Most Expensive Petrol Countries)
.	Country	Average Fuel Price $/Liter	In Pakistan Rupee@ Rs. 60/$	Per capita income at PPP	PCI equivalent to petrol (litres)	Times Petrol more expensive in Pakistan
	Pakistan	0.53	31.80	1757	3315	—
1.	Hong Kong	1.46	87.60	26522	14341	4.33
2.	Norway	1.19	71.40	20939	22287	6.72
3.	Uruguay	1.19	71.40	8280	6958	2.09
4.	UK	1.17	70.20	20883	17840	5.38
5.	Israel	1.14	68.40	NA	NA	NA
6.	Argentina	1.07	64.20	11324	10583	3.19
7.	Finland	1.06	63.60	21209	20008	19.27
8.	Japan	1.06	69.00	24041	22680	6.84
9.	Netherlands	1.03	31.80	23052	22380	6.75
10.	Burunai	1.01	60.60	553	547	0.16

The price of petrol between Pakistan and other most expensive fuel countries is higher 100-175% but if the per capita income is taken into account, the difference goes up. It is estimated that the petrol price in Pakistan is worked out to be as expensive as 6.64 times in Japan, 6.75 times in Norway, and about 5.38 times in UK if per capita incomes are considered.

Source: 1. 2001 World Development Indicators, World Bank.

2. World Development Report, 2000-2001, World Bank.

The following table compares petrol price in Pakistan vis-a-vis other income group countries.

PETROL PRICES AND GNP PER CAPITA IN PAKISTAN AND OTHER INCOME GROUP COUNTRIES
Region	Fuel price $/liter	In Pakistan Rs./liter@ Rs. 60/$	Per Capita Income	PCI equivalent to petrol (litres)	Times petrol price higher in Pakistan
Pakistan	0.53	31.80	1757	3315	—
World	0.54	32.40	6490	12019	3.62
(Medium)
Low income	0.49	29.40	1790	3653	1.10
Middle income	0.48	28.80	4880	10166	3.06
High income	0.86	51.6	21763	25306	7.63
Europe EMU	1.04	62.40	NA	NA	NA
Source: "2001 World Development Indicators", World Bank

The above table reveals that although the price of petrol in terms of dollars is quite comparable with most of the rest of the world ranging around $0.50/litre, yet the cost is too high if the per capita income of Pakistan is taken into account.

While a Pakistani can buy 3315 liters of petrol based on his per capita income/ year, a high income and middle country man can buy 25306 and 10166 liters of petrol with his income which are 7.63 and 3.06 times higher than Pakistan. If comparison is made between the world average and Pakistan, the ratio roughly is 3.62 times higher. However, for low income countries the average price is $0.49 /liter, a little less than Pakistan and GNP per capita of $410, and thus Pakistan is slightly better off.

In the following table, the per capita income (at PPP basis) and petrol price in Pakistan vis-a-vis other major selected countries have been compared:

PER CAPITA INCOME AND PETROL PRICE (times higher or lower than Pakistan)
Country	Per capita income $ (PPP)	Times higher than Pakistan	Super fuel price $/liter	Times higher than Pakistan
Pakistan	1757	—	0.53	—
Hong Kong	20939	11.92	1.46	1.75
Norway	26522	15.09	1.19	1.24
Uruguay	8280	4.71	1.19	0.24
UK	20883	11.88	1.17	1.21O5
Israel	NA	—	1.14	1.15
Argentina	11324	6.45	1.07	1.02
Finland	21209	12.07	1.06	1.00
Japan	24041	13.68	1.04	0.96
Netherlands	23052	13.12	1.03	0.94
Burunai	553	0.31	1.01	0.91
World average	6490	3.69	0.54	0.02
Low income	1790	1.02	0.49	(0.08)
Middle income	4880	2.78	0.48	(0.09)
High income	21763	12.39	0.86	0.62
European	NA	_	1.04	0.96
EMU
India	2149	1.22	0.60	0.13
Bangladesh	1475	0.84	0.46	(0.14)
China	32912	1.88	0.40	(0.25)

The composite table shows that the countries with the highest fuel prices have around 100-125 % higher prices than Pakistan while their per capita incomes are much higher by average 3 to 12 times. However, in comparison with low income countries, fuel prices are lower by about 8% vis-a-vis Pakistan with per capita income higher by only 2%, which shows that petrol prices are high. If you look at China, India and Bangladesh, the fuel prices in Pakistan are cheaper in China and Bangladesh but less expensive than in India.

For which data are available, there are 158 countries having per capita income, on purchasing power parity basis, higher than Pakistan out of 206 countries. In case of fuel prices, Pakistan is 59th amongst the highest fuel price countries, as given in the table ahead.

PAKISTAN'S RANKING: PER CAPITA INCOME AND PETROL PRICE
.	Per Capita Income ($)	Fuel price $/liter
Pakistan (No.)	1757 (159th)	0.53 (7 countries) 59th
No of countries	158	3
higher than Pakistan
No of countries	47	58
lower than Pakistan

Petrol price in Pakistan is $0.53 per liter with the per capita income of $ 1757 at PPP. On the basis of world average per capita income of $6490 and the petrol price of $0.54 /liter as against Pakistan's per capita income of $1757, the price of petrol should have been $0.15 or about Rs. 9 liter as against about Rs. 31/litre about 3.4 times more. There are 7 countries with the same petrol price in dollar, i.e. $0.53.

On the basis of both petrol price per capita income and the quantum of petrol that could be purchased with the per capita income, the following 10 countries have been listed with the lowest and highest petrol prices.

REVISED LIST OF LOWEST AND HIGHEST OIL PRICE COUNTRIES
A 10 Lowest Countries	B 10 Highest Countries
1. Turkmenistan	l. Burundi
2. Iran	2.Tanzania
3. Austria	3.Zambia
4. Singapore	4.Malavi
5. New Zealand	5. Mali.
6. Switzerland	6. Madagascar
7. Australia	7.Niger
8. Canada	8.Chad
9. Venezuela	9.Ethopia
10. USA	10. Bulkina Fasu

Out of 124 countries for which data of both petrol price and per capita income are available, Pakistan is ranked at 33rd with highest price of oil and 91 countries with lower petrol price through this methodology which takes into account both the factors simultaneously. Most of these countries with higher petrol prices belong to Africa or have smal1 economies.