Refiner’s main input, crude oil selloffs (Arab Light/ WTI/ Brent
down 9.5%/9.8%/10.7% since start January 2023) have also remained rampant
throughout CYTD as an overall direct repercussion of US-Fed’s hawkish stance
(debt ceiling conundrum, banking crisis) resulting in significant stockpile
build up over the previous week, softer demand in China amid COVID concerns,
availability of low cost Russian crude towards China and India and finally
easing prices of RLNG globally (US$9.3/mmbtu, down 60%YoY), resulting in power
generation demand for diesel to fall drastically.
Moving forward, analysts expect gasoline cracks to gain
strength and remain elevated with the onset of summer driving season beginning
1st June in the western front, where-in last time both gasoline/gasoil spreads
peaked during July last year.
Overall, heightened geopolitical tensions will continue to
provide major support to prices and in case OPEC Plus stands firm on it supply
cut decisions, the prices may possibly increase further.
Naturally, domestic refinery margins have fallen sharply
from their multi year highs from US$26/ US$45/bbl for MS/ HSD back in June2022,
to presently stand at US$-0.2/2.6/bbl (down 100%/94%).
This has subsequently pushed domestic ex-refinery prices
down by 10%/ 27% from peaks of PKR224/ PKR276 per liter in last summer, for MS/
HSD, even with the currency depreciating by 42% during this time.
Using the aforementioned space, IFEM margin was pushed into
the positive territory as well which had been mostly negative for several
months now.
Local refiners are also expected to reap benefits of the aforementioned
fuel inflation expected during the summer season, which pushed the domestic
cracking spreads as high as US$25/ US$45 barrel last year, for MS/ HSD respectively.
Assuming Arabian Gulf gasoline/ gasoil prices increase by +10% from current
levels, this is expected to raise domestic MS/ HSD prices by PKR18/ PKR21 per
liter, respectively.
Outlook: Moving forward, sector profitability may remain
firm in the near term as refined product margins are expected to remain strong
during 2Q/3QFY23 alongside healthy inventory gains amidst increasing
ex-refinery prices, but may eventually cool off post summers and the commencement
of Middle Eastern capacities (one million bpd capacity inclusion beginning
October 2323).
Although, worsening furnace oil yields in the wake of
falling FO demand may be a risk to look out for as FO crack spreads presently
stand at negative US$28/bbl.
