Is a Fuel Shortage Coming? Oil Industry Rings the Alarm

In a report to the government, the Oil Companies Advisory Council (OCAC) forewarned of a significant interruption to the already precarious supply chain.

Due to currency restrictions and current product pricing, the oil industry appears to be having difficulty arranging crude oil and petroleum products, particularly in light of the recent currency decline and rise in the central bank’s policy rate.

In order to address the “serious impact of the recent fall of the rupee,” according to a national daily, the group has requested an urgent engagement.

The oil sector claimed that the recent depreciation of the Pakistani rupee (PKR) by about Rs. 20 against the US dollar had made the available letter of credit (LC) lines insufficient, posing a serious threat to the continuity of imports of crude and refined products. It further underlined that it was also a subject of great concern for the sector that the cost of opening confirmed LCs had grown many times, negatively harming profitability.

The OCAC recalled that the oil industry had requested a transparent mechanism for recovering all foreign exchange losses in product pricing from the ministries of energy and finance.

Just sustaining the 20 days of mandated stock cover required under OMCs’ licence has resulted in borrowing costs that are more over 50% of regulated margins at the present rupee-dollar parity and in light of the recent hike in SBP policy rates. The OCAC issued a warning that further working capital restrictions could cause OMCs serious problems in this exceedingly difficult market.

In addition, the association claimed that its members had suffered a double blow from the erosion of equity brought on by foreign exchange losses, as well as a reduction in working capital lines brought on by an increase in the rupee-to-dollar parity combined with an increase in global oil prices, particularly high-speed diesel.

The OMCs recorded a total loss in fuel pricing of around Rs. 35 billion over the past few months.

Instances of gasoline shortages in some locations earlier this year highlighted the industry’s precarious state, according to the industry, for which only an urgent government action would guarantee ongoing supplies.

In order to handle the effects of growing oil prices and currency depreciation, which was essential for the survival of the industry, OCAC has requested the government to ensure that the banking sector increases limits for oil businesses and refineries.

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