Pakistan State Oil (PSX: PSO) had reported a hefty improvement in its earnings for 1HFY16. Though the latest quarter (3QFY16) has been weak, the OMC's overall financial performance in 9MFY16 has been satisfactory as well.

In 1HFY16, sizable increase in earnings was witnessed by PSO due to improvement in margins and a continuous fall in financial charges. Also a key growth factor has been the slowdown in circular debt build-up due to settling in of lower crude oil prices, and timely payment against supplies by the oil company.

In 3QFY16 however, the OMC saw a notable decline in earnings. Bottom-line contraction in the same period was assisted by higher inventory losses that resulted in lower gross profits. The top line continued to slow down on account of lower margins on furnace oil and weaker petrol and diesel sales in 3QFY16 versus 2QFY16.

Nevertheless, 9MFY16 earnings for PSO grew by 57 percent year-on-year driven by reduced burden of inventory loss. However, the recent upturn in crude oil prices and increase in petroleum prices will bode well for the OMC segment in the last quarter of FY16 in shape of some inventory gains.

PSO has been entangled in the circular debt crisis. However, its liquidity and cash flow situation has improved massively over the last couple of year due to slowdown in the circular debt piling. The firm's financial position will continue to benefit from its share in retails petroleum products like petrol and diesel as well as LNG.