The oil marketing companies have faced tough times since early 2019 where volumetric sales and oil consumption was seen falling and currency depreciation took a toll on the sector’s profitability. 2020 has been tougher as not only slower economic activity but also the coronavirus pandemic added to the dwindling petroleum demand in the country where all players in the oil marketing sector saw erosion of volumetric growth. Companies like Shell Pakistan however, that rely largely on imports have been affected more as depreciation of PKR continued to play its adverse role.
Shell Pakistan Limited’s (PSX: SHEL) earnings continue the crimson streak; Apart from weaker economic activity and currency depreciation in in recent times, profitability at SHEL has also been affected by the volatility in international crude oil prices. 1HCY20 has seen the company posting losses more than five times on a year-on-year basis, at Rs7.8 billion where a weak quarter (first) followed another (second).
The OMC’s revenues took a dip of 29 percent in 1HCY20, and by 47 percent in 2QCY20 as Covid-19 lockdowns severely impacted the sales volume. Also, global crude oil prices fell by more than 60 percent in the period from January till March 2020, while during the second quarter of CY20, crude oil hit a new low of $19 per barrel in April 2020, which resulted in huge inventory losses for the OMC. And despite a significant decline in other expenses in 2QCY20, the company’s operating loss stood at more than 3 times higher in 1HCY20 versus 1HCY19. Slower growth in finance cost also could not lend support to the nose-diving earnings for Shell Pakistan.
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