Refining margins decline 20%

Naphtha spread narrows significantly to 30-month low.

KARACHI:

Refining margins for local refineries declined by 20 per cent to $4.98 per barrel during June on a monthly basis.

All petroleum products prices except for High Sulphur Fuel Oil declined and led to lower monthly refining margins, according to an Elixir Securities research note.

Monthly refining margins would have been even lower by $0.28 per barrel had the government continued to price petrol using the old unitary penalty adjustment, adds the note.

Petrol’s ex-refinery prices are estimated at Rs60.24 per litre, which is Rs0.9 per litre higher than that derived by using old formula. However, refining margins for local refineries rose significantly by 23 per cent in June against the same period last year.

Deemed duty continued to play a vital role as excluding its benefits would slash margins by more than half. Deemed duty is a tax the government lets refineries charge in order to sell locally-produced diesel at the same price as imported diesel. This was imposed to protect refineries against volatility in international oil prices.

Company-wise margins

Amongst the listed refineries, National Refinery’s margins declined by 18 per cent to clock in at $5.87 per barrel whereas Attock Refinery’s margins was down by 26 per cent to $3.81 per barrel. Pakistan Refinery remained the major loser with 48 per cent decline in June, which averaged $0.74 per barrel.

However on a yearly basis, National Refinery led the increase by 24 per cent followed by Attock Refinery’s 16 per cent and Pakistan Refinery’s 23 per cent.

Naphtha plummets on high supply

Naphtha spread declined significantly to 30-month low of $7.56 per barrel primarily due to oversupply in the region during the period under review, says the note.

Petrol spread turned negative to $0.42 per barrel on possibility that Pakistan State Oil imported the product on cheaper prices, adds the note.

High speed diesel spread also declined by three per cent as most of the refineries recommenced production after the maintenance period, thus, increasing the supply of the product.

Moreover, furnace oil deficit witnessed some improvements as it improved by $1.33 to $14 per barrel, partially offsetting the impact of lower naphtha and petrol spreads.





Published in The Express Tribune, July 2^nd, 2011.