KARACHI: For Oil Marketing Companies (OMCs) like Pakistan State Oil (PSO) and Attock Petroleum Limited (APL) the concern is more on inventory losses due to global fall in crude prices rather than local oil sales.

Since June 2014, international crude prices dropped 10 per cent to $97 per barrel by Sep 30, 2014 and prices of local POL products also moved south in tandem. Over the period, ex-refinery prices of high-speed diesel (HSD) and motor spirit (MS) fell by 3 to 7pc.

“We expect PSO and APL to incur inventory losses of Rs775 million and Rs46m in 1QFY15 respectively,” analyst Vahaj Ahmed at brokerage Topline Securities calculates.

However, crude prices have further declined 8pc to $85.8 per barrel in Oct 2014 to date. While an already oversupplied oil market awaits Opec’s decision to cut daily oil production in its meeting next month, lower-than-expected economic growth in countries like Germany and China are yet another reason for weak oil demand. With this scenario, domestic POL product prices could continue to fall, piling up further inventory losses for local OMCs.

The analyst believes that another 8 to 10pc fall in ex-refinery prices from 1QFY15-end could translate into inventory losses of Rs1.9 billion for PSO in 2QFY15.

During June quarter, PSO had incurred inventory losses of Rs1.8bn. Despite the ability of its associate refinery to cushion some losses, APL could still incur inventory losses at Rs77m in the next quarter.

Other than that, oil sales in the country stood at 5.6m tonnes in 1QFY15, which represented increase of 2pc over sales at 5.5m tonnes in the same quarter last year.

“We had initially expected oil sales in the country to grow 5pc in FY15. However, in light of the recent oil sales figures for 1QFY15 which were affected by floods and further build-up of circular debt in the country, we have revised down our oil sales estimates to 4pc,” says sector analyst.

In 1QFY15, furnace oil (FO) and HSD sales that make up 78pc of total oil sales increased by 1pc and 2pc to reach 2.6m tonnes and 1.7m tonnes, respectively. The MS which contributes 17pc to total oil sales saw volumetric growth at 3pc.

In 1QFY15 PSO’s total oil sales decreased by 6pc to 3.3m tonnes while APL’s sales increased 14pc to 0.6m tonnes in 1QFY15.

Published in Dawn, October 22nd, 2014

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