Govt rolls out three-step plan to shore up oil supplies

ISLAMABAD: The government has drawn up a three-pronged plan to maintain fuel supplies across the country as rising tensions between the United States and Iran add pressure to the domestic oil market. The strategy includes higher refinery output, increased imports and a crackdown on oil marketing companies over alleged stock manipulation.

According to the reported details, the Oil and Gas Regulatory Authority (Ogra) has begun action against companies accused of violating mandatory stockholding requirements and has also launched an anti-hoarding drive with the support of local administrations. The regulator has issued show-cause notices to Fazaia Oil, Inam, Askar, Shell, Attock, Hascol, Flow and Puma over an alleged breach of the requirement to maintain more than 21 days of stock. The reported field stock involved was 47,000 metric tons.

An investigation is also under way into the handling of nearly 300,000 metric tons of stock through offtake and adjustments across six depots, including PSO Machike, GO Keamari, Attock Shikarpur, PSO Mehmood Kot and Rawalpindi, within a single week. Ogra-led enforcement teams have been deployed in different regions to inspect sites and direct district administrations to monitor field and retail activity more closely. The regulator has so far inspected 1,922 filling stations, while eight OMCs have received show-cause notices under the Oil Rules 2016.

Supply pressures and import plan

Several factors are affecting the market at present. A rise in prices is being anticipated because of the US-Iran conflict, while illicit inflows from western border areas have remained limited. Supply has also been hit after three vessels carrying 161,000 tons failed to arrive on schedule, forcing a drawdown in existing inventories. In addition, product availability through pipelines from bonded terminals at Mehmood Kot, Faisalabad and Machike remained limited.

These pressures have disrupted the supply chain and pushed sales of leading oil marketing companies to between 14% and 68% above planned July levels. According to the reported plan, vessels carrying 204,000 tons are on their way to Pakistan and are expected to arrive within the next 10 days, while ships loaded with 42,000 tons have already berthed.

The government has advised refineries to raise petrol production in July and August. It has also decided that pipeline-linked bonded stocks of OMCs will be cleared as early as possible by Papco, Parco and Customs. State-run Pakistan State Oil has been allowed to import additional petrol cargoes at the end of July to rebuild its motor spirit stocks.

Diesel output and stock position

OMCs have also been directed to watch for unusual or abnormally high sales of motor spirit and high-speed diesel at retail outlets. Refineries have been instructed to increase HSD production over the next 15 days to make up for a production loss of 35,000 tons. In addition, PSO has been permitted to import two HSD cargoes from Kuwait Petroleum in August to meet demand and replenish stocks.

Shipments through the Strait of Hormuz could remain difficult because of the geopolitical situation. Refineries have therefore been directed to purchase more crude cargoes in July and August to step up diesel and petrol production as the spread widens and national inventories decline.

Motor spirit sales in July were planned at 295,000 tons, but actual demand reached 356,000 tons, a difference of 61,000 tons or 21%. Average daily MS sales were estimated at 21,000 tons but reached 25,400 tons. For HSD, expected sales were 229,000 tons, while actual sales climbed to 329,000 tons, a gap of 100,000 tons or 44%. Average daily HSD sales were projected at 16,000 tons but stood at 23,500 tons.

Current reported MS stocks stand at 416,000 tons, enough for 17 days at a consumption rate of 25,000 tons per day. HSD stocks are reported at 463,000 tons, sufficient for 20 days of consumption at 24,000 tons per day.