In Pakistan, oil refineries brace for tough times ahead

Expect higher oil imports, low demand in wake of coronavirus pandemic

Zafar Bhutta March 19, 2020

ISLAMABAD: Though imports of some petroleum products have been cancelled, local oil refineries still see terrible times ahead due to higher imports and low demand for petroleum products in the wake of coronavirus pandemic.

The government has deferred oil imports, except for Pakistan State Oil (PSO) whose contracts are in the pipeline, so that oil marketing companies (OMCs) could lift petroleum products from the local refineries.

However, this decision has not brought any change and refineries are still suffering due to high stocks, which have piled up due to the failure of OMCs to lift them.

OMCs imported petroleum products in big quantities and did not lift much oil from local refineries. For the past one month, stocks are building up at the refineries, which may lead to the closure of refining plants.

Now, the refineries are offering discounts on petroleum products ranging from Rs4 to Rs9 per litre. However, the oil demand has gone down substantially due to low economic activities in the country following the outbreak of coronavirus.

Sources in the oil industry called it a terrible time for the refineries as the petrol price (RON 92) had been less than the crude price. “Refineries are operating at negative margins; a disaster is coming,” remarked an official.

The Petroleum Division held a meeting on the issue of low purchase of petroleum products by the OMCs after the product review meeting, chaired by DG Oil, Petroleum Division. In the meeting, they deferred imports, except for by PSO.

Officials in the refinery sector were of the view that although the government was taking some action, the situation had not changed much.

They added that till March, Pakistan Refinery Limited (PRL) had 32,000 tons of petrol available and supplied 12,548 tons. Similarly, against 55,000 tons of diesel for the whole month, PRL has so far supplied 22,402 tons.

The officials warned that PRL had ullage of two days and any further reduction in purchases would result in closure of the refinery.

Hascol asked PRL to give a discount but it was not possible for the refinery as it had imported crude at much higher prices in February. Officials, however, said PRL may be forced to offer discount in the last week of current month in order to reduce inventory losses.

PRL Managing Director Zahid Mir told The Express Tribune that DG Oil was making efforts and cancelled imports, however, because of dwindling demand and decrease in imported oil prices the marketing companies were not lifting petroleum products from local refineries. “The requirement is to further reduce the level of imports, which is still going on,” he added.

Oil industry officials said the situation in National Refinery Limited (NRL) was also not good and it was quite desperate.

Published in The Express Tribune, March 19th, 2020.

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