Uncertainty stalks future petroleum sales

It doesn take rocket science to figure out why the Prime Minister ordered Rs45 billion payment to PSO for a noticeable reduction in load shedding. The government clearly wanted to show improvement in the power crisis before presenting the budget.
Reduction in load shedding can easily be extrapolated to improvement in furnace oil supply as it is one of the key fuels in the power sector. That is why the latest monthly petroleum sales figures of the Oil Marketing Companies (OMCs) show a massive 25 percent year-on-year surge in furnace oil sales during May 2014. The month-on-month comparison is even more striking as furnace oil consumption rose by 35 percent.
Along with the steady growth in motor gasoline consumption on account of strict CNG curtailment plan, another major turn has been taken by High Speed Diesel (HSD), which jumped by a phenomenal 64 percent in May compared to April. The upward movement in HSD consumption started with the delayed beginning of the harvesting season in April.
The government has remained silent in the budget for the OMC sector and has once again postponed the decision to increase petrol and diesel OMC margins in the last ECC meeting, which does not bode well for the OMCs. The OMC sector may now have to contend with a possibility that this growth in furnace oil sales may not be sustainable. Recent developments stand contrary to the market views that the furnace oil will witness growth in coming months.
Firstly, the government plans to recover Rs45 billion of the power losses (similar to the amount given to PSO) from power consumers. And secondly, it has been tightlipped about the resolution of the Rs300 billion accumulated as circular debt.
These two issues may lead to dwindling liquidity in the energy chain once again, which will likely decrease the output of the power producers. That will translate into lower furnace oil consumption. One wonders if status quo prevails, how the Federal Government will keep its promise of much-improved power supplies during the holy month of Ramzan starting about two weeks from now.