OMC sales: end of an era?

As the summers get closer, this time every year – at least for the past decade - analysts had been talking about the scrupulous climb in furnace oil sales volumes for the coming months. It was no surprise as the expensive fuel consumption shot up from its already existing highs.

However, the continuous decline in furnace oil consumption in the last four to five months is narrating a different story this time. With improving power generation capacity, the country has also witnessed a change at the power generation mix where furnace oil consumption has been scaled down in favour of Regasified Liquefied Natural Gas (RLNG). Beginning with the import of RLNG and progressing with a temporary ban on furnace oil power plants, the furnace oil’s uphill journey is likely to come to a halt especially when the government plans to phase out this fuel gradually as new plants on coal, gas, and renewables come online. While it might be a tipping point for power generation, this certainly marks an end of an era for the OMCs that benefited from high volumes of furnace oil sales.

For January 2018, the OMC sales underwent a decline of four percent on a month-on month basis, where furnace oil volumes remained the key inhibitor, falling by around nine percent (MoM). On a year-on-year basis, FO sales by the oil marketing companies dropped by a massive 49 percent, while imported volumes fell by 89 percent. For the 7MFY18, furnace oil sales stood at 4.6 million tons, down by 18 percent, while volumetric imports of the same were down by 30 percent.

Despite achieving some steadiness, retail fuels have continued to fuel growth in petroleum sales, and hence remaining the focus of majority of the OMCs.

However, where the increase in oil prices will continue to offer support, plummeting furnace oil volumes will make their operating environment tough, pulling down the sector’s profitability, especially with talks being held over a complete stop in furnace oil imports.