KARACHI – The oil industry structure seems to have shifted in favour of small players, as PSO’s overall market share stands at 65 percent in February, 2011, down from 71 percent in the same period last year. This decline was impelled by Furance Oil (FO), as PSO’s market share in FO shrunk to 78 percent. Adjusted for FO – PSO’s market share dwindled by a meager one percent to 54 percent, while comparably, Attock Petroleum Limited (APL) and Shell Pakistan gained market share in the first half of this fiscal year. Provisional figures reveal that sales of the petroleum product recovered in February, up by an annual 20 percent, bringing YTD decline to two percent despite the catastrophic floods. Clarity on implementation of government’s plans to address inter-corporate debt remains a key upside trigger.
Sales of two heavyweights (PSO and APL) in total volumes – furnace oil and diesel – dropped by five percent and two percent respectively in February, 2011. Strong gasoline (up 21 percent) and aviation (up 15 percent), however, supported total sales. Growth in gasoline sales was largely driven by a combination of strong two-wheeler sales and substitution demand from diesel (higher prices) and CNG (gas shortages).
“We reiterate our thesis of stronger earnings for both PSO and APL premised on stronger FO margins, potential inventory gains and robust volume”, said Mohammad Fawad Khan at KASB. He added that, as margin on 85 percent of volumes is fixed in rupee, FO remains a key driver of margin growth where a 17-20 percent jump in 2H is anticipated, relative to 1H level, assuming $100-105/bbl oil prices.
PSO and APL are leveraged plays on FO margin expansion, as the government has partially passed down the impact of rising crude prices to transportation fuel (diesel and gasoline). Against a 20 percent jump in crude prices since November, domestic prices are up five percent, implying that the government has taken a cut on its tax collection.
