The oil sector has cautioned the government and the Oil & Gas Regulatory Authority (OGRA) that a scarcity of high-speed diesel (HSD) supplies is imminent, primarily during the peak harvesting season, due to a variety of external and domestic reasons.
Reliable sources in the Petroleum Division revealed that the Oil Companies Advisory Council (OCAC), which is an umbrella confederation of key oil companies and more than two dozen refineries, told the Ministry of Energy and OGRA in a letter that while the current stock position is satisfactory, a massive crisis could strike if effective measures are not taken.
The OAC wrote: “If planning is not done today, we may face problems in meeting the demand during harvesting season,” and stated that Hascol’s financial woes had led to local banks’ hesitancy to increase credit limits for the oil sector because the banks had recognized oil firms as ‘high-risk entities’.
International Shortage of HSD
The consumption of jet fuel in 2020 was reduced due to global travel restrictions, and refineries shifted to higher HSD production. With travel restrictions now removed, the demand for jet fuel has increased, prompting refineries to make jet fuel to meet the increasing demands but this has reduced the production volume of HSD.
The OCAC added that China has banned HSD exports, and jet fuel premiums are more appealing than HSD premiums. Consequently, refineries are boosting the production of jet fuel while decreasing HSD supplies. The price gap between crude oil and HSD prices is around $16 for each barrel, which is the highest in recent years, as reported by Platts.
Similarly, HSD costs are greater than gasoline prices — a trend that has not been observed over the last 18 months, in addition to a fire at a major refinery in Taiwan that has exacerbated supply issues.
Expected Surge in HSD Prices
When the harvesting season will be at its peak in Southeast Asia from March to June, supply limitations are expected to drive up HSD costs, making it more difficult for countries that rely on imported HSD.
More than 40 percent of Pakistan’s supplies are imported from abroad, and most importing oil marketing companies (OMCs), besides the top four, are reliant on a single supplier, who is being investigated by authorities for suspected involvement in the Hascol default with the banks, according to the OCAC.
Pakistan’s Current HSD Stock
As Southeast Asia’s peak harvesting season is from March to June, the availability constraints are likely to elevate HSD prices, and imported HSD-dependent countries will struggle to acquire it. Pakistan currently has a sufficient HSD stock, with 460,000 tonnes of accessible stocks that can suffice for 22 days based on 21,000 tonnes of daily use. However, daily HSD sales are estimated to vary between 25,000 and 30,000 tonnes a day at the start of the harvesting season.
The OCAC has urged the government and OGRA to coordinate with the refineries to plan crude sourcing for March and June so that they can handle the rising requirements.
Via DAWN
