Diesel stocks at OMCs fall below 20-day cover

High-speed diesel (HSD) stocks at several oil marketing companies (OMCs) have fallen below the minimum 20-day consumption requirement as companies hold back purchases on expectations of another change in petroleum prices, sparking concerns over supply security and exposing liquidity constraints in the oil industry. Latest industry stock data shows that 12 out of 20 OMCs are carrying HSD inventories below the 20-day benchmark, with several companies having stock cover in single digits. Companies having stocks below the requirement include ZMOPL with 16 days of inventories, Hi-Tech – also keeping 16 days of requirement, Allied 11 days, Flow 10 days, GO nine days, Hascol eight days, Horizon eight days, Euro seven days, Taj six days, Echo three days, Vital two days and My Petroleum one day. In contrast, eight OMCs are maintaining stocks above 20 days of consumer needs, including Wafi at 31 days, BE 28 days, PSO 26 days, Parco Gunvor 24 days, Jinn 24 days, Puma 23 days, Attock 22 days and Cnergyico (Byco) 21 days. Industry officials said the low inventory position was increasingly being driven by uncertainty surrounding petroleum pricing rather than availability of HSD in supply chain. OMCs are reluctant to build inventories when they expect another downward revision in HSD prices because companies purchasing and uplifting stocks at prevailing prices face inventory losses if the government subsequently reduces the regulated price. The industry is particularly concerned over frequent changes in the petroleum pricing mechanism, arguing that uncertainty about the formula has made inventory planning highly difficult. The Oil Companies Advisory Council (OCAC) also wrote to the minister for petroleum earlier this week, highlighting the problems being faced by OMCs and refineries and seeking greater predictability in the pricing framework. Industry officials said expectations of another price change had resulted in a wait-and-see approach, with some OMCs restricting fresh buying rather than taking the risk of carrying expensive inventories into the next pricing cycle. "An OMC that builds 20 or 30 days of stocks at the prevailing cost faces an immediate inventory loss if the pricing formula is changed and the consumer price is subsequently reduced," an industry source said. "This is restraining companies from uplifting the product and rebuilding their stocks." Liquidity constraints The problem has been compounded by liquidity constraints, particularly the price differential claims (PDCs) stuck with the Oil and Gas Regulatory Authority (Ogra). Industry people said delays in settlement of PDCs had blocked their working capital at a time when companies needed substantial liquidity to finance petroleum inventories. For smaller OMCs, the combination of stuck claims, financing costs and the risk of inventory losses has made it particularly difficult to meet the minimum stock requirement. Officials said OMCs were effectively being asked to maintain substantial inventories while facing uncertainty about the price at which those inventories would eventually be sold. Frequent changes in the pricing formula were, therefore, having a direct impact on companies' willingness to build stocks, they said. The industry has also raised concerns that pricing uncertainty is affecting refineries and their procurement and production planning. OCAC has sought a predictable pricing regime so that refineries can arrange crude and OMCs can plan product purchases without being exposed to unexpected losses resulting from changes in the formula. Industry representatives warned that the combination of low HSD stocks, liquidity constraints, unsettled PDCs and frequent pricing interventions could create stress in the petroleum supply chain if the situation continued. They said the issue had triggered a circular problem: expectations of a price reduction discourage OMCs from uplifting HSD, lower purchases lead a decline in inventories, and falling inventories increase the vulnerability of supply chain.