Unfortunately, 2020 was not a great year for almost all sectors including the oil marketing sector of the country. Not only did the sector’s volumes skidded further down, but the year also ended on a petrol crisis in the country. The oil marketing sector’s performance is generally gauged by the volumetric sales of petroleum products, and the petrol crisis in the country - a second in the last 10 years - was not a good omen for the sector.
The timing of the government’s import rationalization plan of petroleum products like petrol and diesel to protect the local refining sector amid falling demand coincided with the crude oil price crash globally. As a result, while other countries built up their stocks when petroleum product prices were lowest, the OMCs in Pakistan had to cancel import orders as per the ban, which not only was arguably reported as a reason for the petrol shortage later in June 2020, but also the reason for heavy inventory losses that impacted their financial performance.
However, FY21 has turned out to better for the oil marketing segment not only in terms of improvement in volumetric flows of petroleum products, but also from the reform perspective. In 9MFY21, oil sales have been up by 15 percent year-on-year with major contributions from furnace oil and high-speed diesel with growth of 44 and 18 percent year-on-year; motor gasolines too was up by 10 percent year-on-year in 9MFY21. The growth in OMC sales is directly linked to the increase in petroleum demand in the country which is being driven by revival of economic and industrial activity, higher agriculture activity, lower prices of retail fuels, higher auto sector sales, and control on grey product that comes in though smuggling primarily from Iran. Also, a big role is being played by the furnace oil, which is back into the mix largely due to gas shortage in the country and is likely to remain relevant in the coming summer months as well as till gas shortages are sorted out – which means it might not go away anytime soon.
On the reform side, petroleum product price determination has been changed from monthly to fortnightly again, which has definitely lowered the volatility to inventory losses – or gains for that matter. And petrol price has also been shifted from PSO’s average supply cost to the Platts average price. Also, the exchange losses have technically been made pass through item by incorporating them in nextmonth’s ex-refinery prices. This is a respite for the OMCs on the exchange losses front. Amid all this, the sector has seen shift to higher fuel grade last year, i.e., Euro-V.
The government has also recently allowed an interim 6 percent increase in the delayed margin revision of oil marketing companies till a revised mechanism for the determination of OMCs and dealers’ margin is devised. All eyes are now on the new oil refinery and marketing policy which should be announced soon.