December 09, 2021 (MLN): The government can save up to $1 billion from reducing the quantum of energy imports through efficient inventory management, Sherman Securities said in a research note.
This would be attained if the government maintains an average 20-day inventory for the next three months by curtailing 50% refined import in the next three months. This is based on average $75/bbl oil price while currently, Arab light price is close to $76/bbl, the note added.
The same will reduce imports of refined products which is positive for local OMCs and refineries. With oil prices expected to be on a lower side amid consensus on OPEC production increase and Omicron threat, there will be a lower risk of inventory losses for OMCs as any sharp decline in oil prices may compel them to book inventory losses.
Having the lion’s share in the imports, petroleum products are considered to be the major culprit behind a historic swell of import bills- caught everyone’s attention in previous days, on the back of surging commodity prices in the global market.
Since then, the analyst fraternity, researchers, and policymakers are looking for ways to cool down the soaring numbers as the depleting forex reserves will hardly cover the bill for around three months if it continues to report around the same figures.
The drop in petroleum products’ import may cut the bill sharply but for this, enough stock is required for smooth economic activities without causing any shortages domestically.
At present, Pakistan’s oil stocks including all POL products are now enough for around 30 days which may compel the government to reduce reliance on imported products for time being. By this, the government may save around US$350mn (22% of current energy import bill) on monthly basis for the next three months.
This is feasible at a time when international oil prices are likely to be on the lower side as predicted by various agencies amid Omicron (Covid-19) outbreak which has created concerns on energy demand. Moreover, rising concerns on imports are another factor as the government is finding avenues to reduce the import bill.
The estimate suggested that around 1.5-1.8mn tons of stocks are available with local oil marketing companies (OMCs) which is enough for 30 days as combined consumption of petrol (MS), diesel (HSD) and furnace oil (FO) is around 1.7mn tons on a monthly basis.
According to the latest available data, OMCs imported around 5.5mn tons of refined oil products during Jul-Oct 2021 which is expected to swell to around 6.9mn tons during Jul-Nov 2021 while local consumption is expected to be around 9.4mn tons during Jul-Nov 2021 (local production likely to be around 4.1mn tons). This has left away with a total oil product inventory of 1.5-1.8mn tons, as per our estimates, the note further added.
It is pertinent to mention that the total energy bill stood around $1.6bn in October which included $0.7bn worth of petroleum imports which mainly consist of MS, HSD, and FO.
As per a news report published in The News, Cnergyico Pk Limited – formerly Byco Petroleum– has engaged potential buyers including oil giant Exxon to export FO, which is currently overflowing from its storage facilities as local demand has dried up.
The report claimed that Cnergyico Pk Limited had exported furnace oil in 2019 and it was again making the same attempts, but low international prices were stymying these efforts. International crude prices are hovering around $71-$72/barrel, whereas furnace oil was languishing in the range of $57-$58/barrel in the world.
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