Shell may witness a 50 per cent jump in future earnings estimates if the proposed increase in margins is implemented, according to KASB Securities.
The Ministry of Petroleum on Tuesday agreed to revise the oil pricing formula in a bid to increase margins of Oil Marketing Companies and implement the decision of deregulating prices of petroleum products.
An increase of 20 to 25 per cent in margins is likely within the next three to six months, says a KASB Securities research note.
Assuming oil stays at $90 a barrel, rupee-dollar parity at 85 and marketing margins range between Rs1.6 to 1.9 per litre, Pakistan State Oil may also witness an eight to 19 per cent increase while Attock Petroleum’s earnings will climb three to eight per cent, the note adds.
Two key regulated products diesel and gasoline account for 36 per cent, 38 per cent and 60 per cent of the total volumes for PSO, APL and Shell Pakistan, respectively.
Petroleum dealers demanded a high margin of Rs5 per litre on petrol and diesel compared with the current margins of Rs1.5 on diesel and Rs1.87 on petrol. Sources told The Express Tribune following the meeting on Tuesday that the petroleum ministry offered Oil Marketing Companies an increase in margin on petrol from Rs1.5 to Rs2 per litre.
A strong case for margin upgrade
The marketing margins on diesel were fixed in February 2009 and gasoline in December 2010, a time when crude prices were around $69 a barrel while rupee-dollar parity was Rs77 to 78. Since then, crude prices have surged 48 per cent while the rupee has lost 11 per cent.
The combination of rising operating cost and adverse currency impact has significantly lowered net margins on marketing and transportation of fuels, especially for small players, says KASB Securities analyst Mohammad Fawad Khan.
The recent softening of crude prices has created room for the government to tweak the pricing formula. Oil prices have to stay below the $90 to 95 a barrel (bbl) mark to allow the government to raise margins without having to increase consumer prices and attracting undue media attention, says Khan.
Published in The Express Tribune, May 19th, 2011.
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