Foreign exchange constraints crop up in oil supply chain despite improvement in stock of petroleum products

ISLAMABAD: Despite improved stock covers of petroleum products, foreign exchange constraints have started to crop up in the oil supply chain due to additional costs of skyrocketing global prices, insurance and import premiums, and freight charges.

The issue was formally raised at a meeting of the special cabinet committee formed to monitor petroleum prices, presided over by Finance Minister Muhammad Aurangzeb.

The oil industry complained that credit limits for oil marketing companies (OMCs) in Pakistani currency remained unchanged, despite their foreign exchange requirements increasing more than double since the beginning of the US-Israel war on Iran.

These limits were set when petrol and diesel prices in the global market were around $70 and $90 per barrel, which have now gone beyond $132 and $190 per barrel, respectively. Similarly, the situation with insurance costs, import premiums and freight charges has been affected because of longer haul voyages. The import premium has gone above $20 from less than $5-6 per barrel.

As a consequence, commercial banks were not providing full foreign exchange coverage to their import requirements. Led by state-owned Pakistan State Oil (PSO), the industry demanded that the committee and the State Bank of Pakistan (SBP) intervene and enhance their credit limits or make any other arrangements they may deem appropriate for foreign exchange availability for oil imports.

It was reported that both petrol and diesel stocks had improved over the past few days despite challenges. Petrol stocks now provide more than 29 days of coverage while diesel stocks provide 26 days of coverage. Crude stocks had also increased to 14 days while Saudi Aramco had promised to deliver two more cargoes by mid-April.

An official statement said the committee was briefed that global petroleum markets remained “exceptionally tight, with recent increases observed in both benchmark prices and cargo premiums”.

Members noted that the prevailing market conditions reflect supply-side uncertainties linked to regional developments, with premiums for upcoming cargoes expected to remain elevated in the near term.

“It was highlighted that rising........

© Dawn Business