Oil imports hit an all-time high in July

The country recorded the highest-ever oil imports in July amid restricted local refinery production due to circular debt and growing oil needs, according to Topline Securities.

Oil imports surged 20 per cent as both refineries and oil marketing companies imported 1.9 million tons compared with 1.6 million tons during the same period last year, data released by the Oil Companies Advisory Committee (OCAC) showed.

Furnace oil imports  surge 51%

Imports of furnace oil grew by a stunning 51 per cent to 0.7 million tons in July. This is primarily on the back of continuous increase in demand from thermal power plants and relatively lower furnace oil production by local refineries, said Topline Securities analyst Farhan Mahmood.

The swelling circular debt and negative refinery margin on furnace oil has resulted in refineries scaling down furnace oil production. This has caused concern as more than 80 per cent of the local furnace oil demand is being met through imports, which was only 56 per cent three years ago.

Oil products imports up 27%

Though imports of crude oil grew by 7 per cent to 0.6 million tons in July, they stood close to the 12-year average of 0.5 million tons per month.

However, imports of petroleum products which mainly include diesel (32 per cent) and furnace oil (56 per cent) grew by 27 per cent to 1.3 million tons.

This is 30 per cent higher than the average monthly oil product imports of one million tons during the last 12 months, said Mahmood.

Circular debt: no resolution in short run

The underlying factor behind continuous rise in imports is the growing circular debt which has reduced local crude and refined oil production.

Despite some big oil discoveries in recent times, oil production is relatively flat on an average during the last couple of years. Moreover, refineries are producing 20 to 30 per cent less than their capacity.

With circular debt hovering around Rs130 billion, of which more than 70 per cent is being borne by local exploration and production companies, there are chances that their drilling activities will drop in the near future.

However, the government needs to support new refineries for the long-term refinery policy. The upcoming 4.5-million-ton Byco refinery, expected to be commissioned in the next few months, could reduce the need for the import of oil products by 36 per cent.

Published in The Express Tribune, August 25^th, 2010.