Oil industry prompts government to discourage hoarding as petrol stocks decline to 14-day cover

ISLAMABAD: Pakistan’s oil supply chain players appeared nervous as petrol stocks declined to a 14-day cover on Thursday, prompting the government to urgently address procedural issues and activate enforcement mechanisms to discourage hoarding for profiteering in the market.

The decline comes amid rising prices following renewed US-Iran hostilities.

Informed sources said the government may have to revert to the fuel conservation measures adopted over the past couple of months as it reviews the latest regional situation.

A session with the oil industry, urgently convened by the recently created National Coordination and Management Council (NCMC) — a civil-military body on energy supplies — “holistically” reviewed the availability of petroleum products across the country. Minister for Economic Affairs Ahad Khan Cheema is the chairman, while Lt Gen Zafar Iqbal is the co-chairman of the NCMC’s executive committee.

Informed sources said petrol consumption had risen over the past three weeks following a substantial price cut.

In the first half of July, petrol consumption was almost 18-20 per cent higher year-on-year, while diesel demand was about 40pc higher than in July over the past five years. This was a clear indication of a reduction in smuggled inflows from Iran due to the narrower price gap.

The cancellation of a couple of Pakistan State Oil’s (PSO) planned import cargoes after they failed to secure clearance from the NCMC amid falling global prices ahead of the interim US-Iran peace agreement also contributed to this.

Subsequent tensions sent import premiums skyrocketing again. PSO’s two latest petrol cargoes attracted around $25 per barrel in premiums, compared to $12 about 10 days ago.

However, as of Thursday, petrol and diesel were estimated to be costlier by around Rs10-12 and Rs40-42 per litre, respectively, providing an incentive for dealers to seek greater supplies from oil marketing companies and for hoarders to profiteer.

While PSO remains the country’s fuel lifeline, smaller players are reluctant to burn their fingers, citing more than Rs66 billion in pending price differential claims against the government. Oil companies have also complained of challenges in customs clearance.

Diesel stocks now stand at a cover of around 21 days and local refining is keeping pace with requirements.

Petrol consumption currently stands at around 25,000 tonnes per day against stocks of 345,000 tonnes, while local refineries can supply no more than 9,000 tonnes per day. HSD stocks stand at around 465,000 tonnes against daily consumption of about 23,000 tonnes, with local refineries supplying around 16,000 tonnes per day.

It was against this background that the Oil Companies Advisory Council (OCAC) — an association of over three dozen refiners and OMCs — raised red flags by writing an urgent warning to the government about an ensuing supply chain challenge.

During the NCMC meeting, “the supply-side challenges highlighted by the representatives of the OCAC were discussed and addressed”, an official statement said.

The committee observed that the concerns raised by OCAC primarily stemmed from an abnormal increase in petroleum product sales during the first 15 days of July. An analysis presented by the Oil and Gas Regulatory Authority (Ogra) also indicated the possibility of hoarding in anticipation of a potential price increase, the statement added.

“The NCMC emphasised that Ogra’s enforcement mechanism should play a more proactive role, and urged provincial governments to ensure that there is no hoarding and that petroleum products remain readily available to the general public without any inconvenience,” the council said after the meeting.

The meeting was attended by Petroleum Minister Ali Pervez Malik, representatives of oil marketing companies and refineries, as well as officials from the Oil Companies Advisory Council (OCAC), Member Customs FBR, OGRA and other relevant stakeholders.

“The committee reaffirmed that petroleum product stocks in the country are sufficient and directed all relevant stakeholders to maintain uninterrupted supply across the country,” the statement concluded. Informed sources said the customs authorities promised to remove challenges at their end immediately.

A day earlier, the OCAC had updated the government about the challenges and demanded the immediate disbursement of about Rs67bn in Price Differential Claims (PDCs) to ensure smooth supplies. It had complained that a portion of existing stocks were unavailable for sale due to bottlenecks in the customs clearance process, effectively reducing immediately saleable inventory.

“Under the prevailing circumstances, any further delays in customs clearance could materially impact product availability and increase the likelihood of localised shortages, especially in upcountry locations”, the OCAC had said. ...