Pakistani OMCs face doom and gloom

Sales of oil marketing companies in March 2023 dipped to 1.1 million tons, a fall of 9%MoM and 39%YoY basis. The decline was led by high speed diesel (HSD) and furnace oil (FO). This is the lowest monthly offtake number since April 2020 (1.068 million tons), when Government of Pakistan (GoP) resorted to lockdowns in a bid to contain the spread of COVID-19.

The decline can be mainly attributed to significant price hikes in motor spirit (MS) and HSD over the previous two months, taking prices during March to PkR272 and PKR293 per liter respectively.

The said fall to 35 month low can also be attributed to demand destruction, as POL sales volumes are correlated with an overall economic slowdown, depicted by falling industrial activity, falling power generation, shock in the auto sector and the unprecedented wave of inflation that has gripped the economy.

Overall, total POL sales remained down by 21%YoY during 9MFY23, to 12.8 million tons as compared to 16.2 million tons during the same period a year ago.

Product wise, HSD sales were down 43%YoY and FO offtake was down 70%YoY), as muted industrial activity and power generation. FO based generation declined 51%YoY during 8MFY23.

Analysts expect increased HSD offtakes in the upcoming Kharif season (April-June), although, with fuel prices on the rise, it is expected to be an expensive affair for farmers, and may even be riddled with fuel shortages like last year where diesel shortage hit sowing/harvesting farmers in Punjab as they queued up at filling stations, being wary in anticipation of monsoon season in May/June. The ongoing wave of inflationary pressures has also gripped the economy and has resulted in consumers choosing to avoid leisurely travel amidst reduced purchasing power.

It is worth mentioning that the prices of both MS and HSD have risen to PKR272 and PKR293 per liter, respectively.

These prices represent an increase, in line with the current government's plan to pass on the full cost of supply and levies to consumers.

Company wise, major players in the sector, PSO/APL/SHEL/GOPL, delivered throughput levels of 535,000/113,000/89,000/58,000 tons, taking total market share to 48.4%/10.2%/8.2%/5.3% for March 20223, respectively.

To note, PSO’s offtakes remained worse off, down 44%YoY, mainly due to dampened FO demand, down 92%YoY as compared to an industry-wide decline of 70%YoY.

More specifically, country’s largest OMC saw its retail volume fall by 12%MoM/36%YoY. Furthermore, HASCOL emerged the most resilient amidst the industry decline as total volumes for the month were reported at 43,000 tons, up by 60%MoM. This comes on the back of HASCOL’s approach to remobilize most of its retail depots by CY22 end, as most closed up due to company’s fallout back in CY20.

On the retail front, PSO and APL ended the 2QFY23 period with market share standing at 49.1%/8.5% as compared to 47.0%/8.3% during SPLY.

With only a quarter left during the year – the demand for petroleum products hasn't looked this bad in years since the Covid’19 pandemic struck. Overall, the broad based economic slowdown continues to haunt the sustainability of the sector as risen prices and dampened industrial/commercial activity have kept offtakes under pressure.

On a forward looking basis, rampant inflationary pressures in the coming quarters alongside a depressed GDP outlook during the year period compels us to assume negative volumetric growth for the industry, by approximately 20-21% for FY23 (previous 15%).

 

Business community slams hike in interest rate

While slamming another 100 basis points (bps) hike in the benchmark interest rate to a record 21%, the business community on Tuesday questioned the government’s approach of fighting inflation by jacking up lending rates saying the strategy has failed to produce desired results but slowed down economic activities.

“The entire business community has refused to accept the 100 bps hike in the policy rate to an all-time high at 21%,” announced Federation of Pakistan Chambers of Commerce and Industry President Irfan Iqbal Sheikh.

In a statement, he said the benchmark interest rate has risen by a whopping 1125 bps in the last 14 months but failed to check inflation. “If that is not the governance and regulatory failure, then what would the failure look like to move the government for a course correction? he asked.

The trimming of growth projections by both the World Bank and the Asian Development Bank to less than half a percent for FY23 is the direct outcome of the regressive, IMF-dictated and recessionary monetary policy which has dried out the access to finance for businesses, the FPCCI chief lamented.

The country’s exports have posted negative growth for the seventh month in a row and the two major industries like textile and IT have persistently been facing a decline.

He said the 21% interest rate is far higher compared to what is prevailing in China, India and Bangladesh at 2.75%, 6.5% and 6% respectively.

Inflation in Pakistan, however, appears to be deep-rooted and it mainly stems from substantial exchange rate depreciation, unprecedented hike in international commodity prices, multiple rounds of hikes in energy tariffs and other prescribed measures under the IMF program, he noted.

Despite raising the SBP policy rate to 21% in the current month, inflation remained stubbornly high and a further surge is a manifestation of an utter failure of the monetary policy, the FPCCI president observed.

Pakistan Business Council chief executive Ehsan Malik said the latest hike in the policy rate, much like other recent rises, would do nothing to control cost-push and devaluation-led inflation.

“Nor in this politically turbulent time will it buffer the value of the rupee,” he added. On the other hand, he said it would raise the cost of borrowing for the formal sector already suffering from low capacity utilization due to an import crunch.

“It is time that the State Bank of Pakistan (SBP) adopts a more differentiated stance on the use of monetary policy,” Ehsan said.

SITE Association of Industry President Riaz Uddin said the hike in the interest rate would further increase the cost of doing business which is already hit by rupee devaluation against the dollar, rising gas and power bills, dollar crisis, shutdowns of various industries due to raw material shortage, etc.

Courtesy: Dawn

Saudi Arabia to privatize airports and roads

Mohannad Basodan, CEO of the National Center for Privatization (NCP), unveiled the plans to privatize the airports of Abha, Taif, Hail and Qassim, as well as about 4,500 kilometers of modern roads in the Kingdom.

In an interview with Al-Arabiya, Basodan said that a series of privatization projects has been announced and these include around 200 approved projects, of which about 140 projects have been made available to local and international investors.

“The Kingdom has the largest series of privatization projects in the region, which include various qualitative investments, and these are made available in advance to give investors the opportunity to prepare well in advance before their offering,” he said while noting that the series of privatization projects in the Kingdom includes the airports of Abha, Taif, Hail and Qassim, and about 4,500 kilometers of modern roads.

Basodan said that privatization in the health sector includes general hospitals, university hospitals, health services, laboratories and radiology. “In the education sector, it includes school buildings, colleges of excellence, establishment of model institutions, in addition to water and wastewater treatment projects,” he said.

Basodan noted that these projects are scheduled, and 60 projects were launched in the last period, and there are projects in various phases of the preparation period. He stated that the NCP had succeeded, during the past five years, in awarding contracts for 43 projects, ranging from partnership, sale of assets, or institutional transformation.

“The first quarter of 2023 witnessed the signing of contracts for projects in the transport sector, including Spanish-Saudi, and Chinese-Saudi alliances. There is a diversity of operations to attract foreign investors and available projects.”

It is noteworthy that the National Center for Privatization has identified 200 projects available to local and international investors, with the aim of giving them sufficient period of time to learn about privatization projects in the Kingdom and their nature before officially offered to the market.

Earlier, Minister of Finance Muhammad Al-Jadaan urged to continue publishing details about projects for privatization so as to enhance partnership between the public and private sectors and attract new international investments. This is also aimed to enable the local private sector to benefit from the announced opportunities.

Russian oil getting into Europe via India

Record high imports of crude oil from Russia in fiscal 2022-23 helped Indian refiners boost exports of diesel and jet fuel to Europe as the continent shunned Russian products, ship-tracking data from Kpler and Vortexa showed.

Access to cheap Russian crude has boosted output and profits at Indian refineries, enabling them to export refined products competitively to Europe and take bigger market share.

Europe typically imported an average of 154,000 barrels per day (bpd) of diesel and jet fuel from India before Russia's invasion of Ukraine. That increased to 200,000 bpd after the European Union banned Russian oil products imports.

India's imports of Russian crude in March rose for the seventh straight month to end out the fiscal year as top supplier to India, displacing Iraq for the first time, the data showed.

Indian refiners, which rarely bought Russian oil previously due to high transport costs, imported 970,000-981,000 bpd of it in 2022/23, accounting for more than a fifth of overall imports at 4.5-4.6 million bpd, Kpler and Vortexa data showed.

Imports from Iraq slipped to 936,000-961,000 bpd from nearly 1 million bpd in 2021/22, the data showed.

While Russia's flagship grade Urals makes up the bulk of India's purchases, refiners are also importing lighter grades from Russia's Far East and Arctic grades such as Sokol, Arco, Novy Port and ESPO blend.

Russia's largest oil producer Rosneft and top Indian refiner Indian Oil Corp have signed a term deal to substantially increase and diversify oil grades delivered to India.

As Europe's ban kept Russian products out, India's diesel exports to the continent rose 12-16% to 150,000-167,000 bpd in the last fiscal year, the Kpler and Vortexa data showed.

That accounted for about 30% of India's total gasoil exports, up from 21-24% a year earlier, the data showed.

The key European buyers of Indian diesel are France, Turkey, Belgium and the Netherlands, the Kpler data showed.

Europe accounted for about 50% of India's jet fuel exports, or around 70,000-75,000 bpd in 2022/23, up 40,000-42,000 bpd the previous year, the data showed.

Besides increasing exports to Europe, India has also boosted vacuum gas oil (VGO) shipments to the US.

The US took about 11,000-12,000 bpd of VGO in 2022/23, or 65-81% of India's overall exports of the refining feedstock that can be processed further to produce fuels such as gasoline and diesel, the data showed.

In 2021/22, India exported only around 500 bpd of VGO to the United States.

However, India's total annual refined fuel exports in 2022/23 were lower than a year earlier as some refiners shut units for maintenance in later half of 2022.

 

Saudi-Iranian foreign ministers to meet in Beijing on Thursday

Saudi Arabian Foreign Minister Prince Faisal bin Farhan and his Iranian counterpart Hossein Amir Abdollahian are scheduled to hold their historic meeting in Beijing on Thursday, April 6, Asharq Al-Awsat reported.

The Beijing meeting preceded three telephone conversations between the two ministers in recent weeks after signing the agreement, brokered by China, on March 10.

During the phone talks, the ministers discussed a number of key issues related to the resumption of bilateral diplomatic ties, such as the next steps to be taken with regard to implementation of the agreement; procedures for reopening diplomatic missions; and activating the previous agreements signed between the two countries before severing the relations.

The main purpose of the meeting is to activate the content of the landmark agreement to resume bilateral diplomatic relations, and to arrange the exchange of ambassadors after a hiatus of seven years.

According to the report, the choice of Beijing as the venue for the meeting between the Saudi and Iranian foreign ministers comes as an extension of Beijing’s positive role in reaching the agreement and facilitating communication between the two countries.

Saudi Arabia and Iran, along with China, announced in a joint statement on March 10 that the agreement will be implemented within 60 days. The tripartite statement emphasized the respect for the sovereignty of states and non-interference in their internal affairs.

It also affirmed the activation of all joint agreements between Saudi Arabia and Iran, including the security cooperation agreement, and the cooperation agreement in the fields of economy, trade, investment, technology, science, culture, sports and youth.

The signing of the historic agreement to restore diplomatic ties took place after several rounds of negotiations between Saudi Arabia and Iran in Baghdad and Muscat, and these were followed by the last round of negotiations held in Beijing from March 6 to 10.

In the talks, the Saudi delegation was headed by Minister of State, Member of the Cabinet and National Security Adviser Dr. Musaed Al-Aiban while the Iranian delegation was headed by Secretary General of the Supreme National Security Council Admiral Ali Shamkhani.

This historic initiative came after seven years of severing relations between Saudi Arabia and Iran, following the attack on the Saudi embassy in Tehran and the Saudi consulate Mashhad, in January 2016, and ransacking and burning of its properties. These incidents prompted the Saudi Ministry of Foreign Affairs to ask Iranian diplomats to quit the Kingdom within 48 hours while calling back its diplomats from Iran.

Venezuela March oil exports rise

Venezuela's oil exports rose in March to the highest monthly average since August last year, boosted by a resumption of loadings after an export freeze and by rising cargoes assigned to Chevron Corp.

State oil company PDVSA has reinstated two export contracts after a January freeze by new boss Pedro Tellechea, a medium-term contract with Hangzhou Energy, and another with Portugal-based Adinius Sociedade de Servicios.

Those two customers accounted for the largest portion of exports, a sign that PDVSA is consolidating contracts it had with dozens of little-known firms responsible for the loss of billions of dollars from failed payments into fewer agreements.

Oil swap deals with Chevron, Cuba's state company Cubametales and Iran's Naftiran Intertrade Co (NICO) - and most exports of oil byproducts - have continued flowing without interruption during the freeze.

PDVSA and its joint ventures in March shipped a total of 774,420 barrels per day (bpd) of crude and fuel, mainly to China, a rebound from the low figures registered in the two previous months, the documents and data showed.

Eight very large crude carriers (VLCC) set sail from Venezuelan ports, which eased a tanker bottleneck that had built up since early 2023.

Chevron received and exported about 115,000 bpd of Venezuelan heavy crude to the US, an increase from about 80,000 bpd in February.

PDVSA and Venezuela's oil ministry did not reply to a request for comment. Hangzhou Energy and Adinius Sociedade de Servicios could not be reached for comment.

An Iranian supertanker, the Sea Star III, arrived in Venezuelan waters on the weekend carrying 2.1 million barrels of condensate to dilute PDVSA's oil, according to monitoring firm TankerTrackers.com. The vessel, owned by National Iranian Tanker Company, had its tracker offline since February when it set sail from Assaluyeh.

Venezuela also exported 276,000 tons of oil byproducts, a decrease from the 347,000 tons of the previous month and from 727,000 tons in January, as shipments of petroleum coke declined.

As part of an extended audit of its supply contracts, PDVSA is reviewing accounts of Geneva-based firm Maroil Trading, owned by Venezuelan shipping magnate Wilmer Ruperti, over outstanding debts from petroleum coke supply. Ruperti last week said the situation "was resolved."

All contract revisions are part of a widespread anti-corruption probe that has resulted in the arrest of more than 40 officials and businessmen, according to the Venezuelan attorney general's office. Powerful Oil Minister Tareck El Aissami resigned last month amid the investigation.

 

 

OPEC Plus still controls oil supply

The surprise oil output cuts announced on Sunday by OPEC plus members illustrate their greater power over the market, given limited supply growth by other producers such as US shale firms and still-growing demand despite the energy transition.

Oil has jumped to US$85 a barrel since members of the Organization of the Petroleum Exporting Countries and allies including Russia announced production cuts of about 1.16 million barrels per day (bpd), adding to curbs already in place.

While OPEC or OPEC Plus decisions to cut output in the past have drawn warnings that higher prices and lower OPEC Plus output would encourage US shale producers to pump more, officials have not voiced such concerns recently.

Goldman Sachs said it sees elevated OPEC pricing power - the ability to raise prices without significantly hurting its demand - as the key economic driver, and estimates the production cut will raise OPEC  Plus revenues.

"One thing is for certain, OPEC is in control and driving price and US shale is no longer viewed as the marginal producer," said James Mick, senior portfolio manager at Tortoise Capital Advisors.

"OPEC wants and needs a higher price, and they are back in the driver's seat to obtaining their wishes."

US shale oil drillers over the last two decades helped to turn the United States into the world's largest producer. But the gains in output are slowing and executives warn of future declines.

US oil and gas activity stalled in the first quarter, according to a survey, with some respondents citing higher costs and interest rates. OPEC has this year been lowering its US shale oil output forecast, having also done so in 2022.

An OPEC Plus source, asked if OPEC Plus is in the driver's seat when it comes to the oil market now said, "We are not in the passenger seat".

OPEC+ does not have a target for oil prices. The Saudi Arabian energy ministry said the voluntary output cut from the kingdom, the kingpin of OPEC Plus, was a precautionary measure aimed at supporting oil market stability.

OPEC sources have cited a lack of sufficient investment to increase supply as likely to support prices this year.

Investment is rebounding after taking a hit during the pandemic. According to the International Energy Forum (IEF), oil and gas upstream capital spending rose 39% in 2022 to US$499 billion, the highest level since 2014 and the largest ever year-on-year gain.

But, the IEF said, annual upstream investment will need to increase to US$640 billion in 2030 to ensure adequate supplies.

OPEC is pumping almost 1 million bpd less than its current output target, according to its own figures and other estimates, with notable shortfalls in Nigeria and Angola from which Western oil companies have moved away in recent years.

While non-OPEC producers are still expected to pump more in 2023, the forecast of a supply increase of 1.44 million bpd falls short of expected world demand growth of 2.32 million bpd, according to OPEC forecasts.

The International Energy Agency, which represents 31 countries including top consumer the United States, also expects demand growth to exceed supply growth, although to a smaller extent than OPEC.

In OPEC's view, investment cuts after oil prices collapsed in 2015-2016 due to oversupply; along with a growing focus by investors on economic, social and governance (ESG) issues - such as tackling climate change - have led to a shortfall in the spending needed to meet demand.

OPEC Secretary General Haitham Al Ghais, in comments to Reuters last year, attributed slower shale growth to factors including an increase in investor caution and the impact of ESG issues on the industry.

"The scope for supply growth outside of OPEC+ members is limited and in combination with tighter conditions expected later this year even before this cut was announced, there is now greater upside risk to prices," said Callum Macpherson, head of commodities at Investec.