ISLAMABAD: Feeling the heat of falling oil prices, the country’s oil companies have asked the government to shift the existing practice of monthly price adjustment to weekly or fortnightly basis to minimise their inventory losses.

A senior official at the ministry of energy — petroleum division — said that the oil companies had been earning billions of rupees every year in the form of inventory gains as the prices were going up. One of these companies earned up to Rs6-7 billion a year in recent past on account of inventory gains — the oil imported at lower rate in a month and carried and sold at higher rate when stocks carried over to next month.

However, the first sudden drop in prices globally following a price war between two major producers — Russia and Saudi Arabia — have made the oil companies realise that the monthly price adjustment was going against their interests.

During the declining trend, the companies under the existing monthly pricing regime are compelled to sell leftover stocks of previous months at lower rate in a subsequent month. To minimise their losses, the companies tend to reduce their imports unless efficiently regulated.

Say declining petroleum prices causing inventory losses

In a letter to the petroleum division, the Oil Company Advisory Council (OCAC) — an association of oil companies operating in the country — has demanded switching the frequency of petroleum product pricing from monthly to fortnightly or weekly basis.

“We would like to bring it to your kind notice that due to the declining petroleum product prices being experienced in Feb-March 2020, the whole Downstream Oil Industry is faced with uncertainty and financial exposure,” wrote Syed Zawar Haider, chief executive officer of the OCAC.

As a consequence, upliftment from refineries and oil marketing companies’ depots was depressed while there was also a huge trading exposure in imports, he said, adding the companies had also suffered losses due to rupee depreciation over and above the pricing exposure.

“To mitigate the situation in weeks and months ahead so as to avoid any undesirable situation in terms of import shyness and availability of petroleum products, we propose to switch the frequency of petroleum product pricing from monthly to fortnightly basis and if further needed to weekly basis,” Mr Haider said.

Published in Dawn, March 13th, 2020