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 international prices have significantly increased the landed cost of imports, resulting in larger transaction sizes and placing pressure on existing financing arrangements,” the statement said, adding the committee discussed “operational challenges arising from the increased size of letters of credit (LCs) and emphasised the need for enhanced coordination between financial institutions and importers to ensure continuity of fuel imports”.

The finance minister directed that the matter be taken up with the State Bank of Pakistan and the Pakistan Banks’ Association (PBA) to explore facilitation measures, including temporary enhancements and consortium-based financing where required. Meanwhile, the central bank governor assured the committee that any issues relating to prudential limits would be reviewed on priority, while banks were encouraged to adopt a flexible approach to accommodate higher transaction volumes in view of prevailing market conditions.

The committee also undertook a detailed review of petroleum product stock positions and was briefed that, despite heightened volatility in international energy markets and evolving regional dynamics, domestic supply remained stable with adequate stocks available across the country. It was noted that diesel stocks currently provided approximately 24 days of cover, while petrol stocks remained at comfortable levels, supported by ongoing imports and refinery operations.

The Petroleum Division reported that one cargo of crude oil had arrived and was under discharge, while another vessel is expected to reach Karachi harbour within hours. It said that additional shipments remained in transit, and further import arrangements for March and April were being actively managed to reinforce national reserves. Refinery throughput was also expected to improve as incoming cargoes are processed, with efforts underway to optimise production levels across facilities.

The committee also reviewed demand patterns in the domestic market and noted indications of elevated offtake in recent weeks. Members emphasised the importance of close monitoring to discourage speculative stockholding and ensure that fuel availability remains smooth across the distribution network. Provincial administrations and regulatory authorities were directed to intensify oversight, including inspections and enforcement actions where necessary.

In view of the upcoming Eid holidays and the ongoing harvesting season, the committee reviewed supply continuity arrangements and was informed that OMCs would maintain operational readiness to meet demand. It was reiterated that depots would remain functional in line with commercial requirements, and no disruption in fuel availability was anticipated during this period, the statement said.

The meeting also reviewed progress on strengthening monitoring mechanisms, including the development of a digital dashboard aimed at improving real-time visibility of stock levels and supply conditions. The finance minister emphasised the need for timely data integration and directed all stakeholders to ensure prompt sharing of information to support informed decision-making.

Members were also briefed on ongoing engagements with international partners to diversify supply sources and mitigate potential disruptions. It was noted that discussions with key suppliers, including under government-to-government arrangements, were progressing, with additional volumes expected to strengthen supply security in the coming weeks.

Aurangzeb told the meeting that the government’s foremost priority was to ensure the uninterrupted availability of petroleum products across the country while minimising the burden on the public. He observed that while international markets continue to exhibit volatility and upward price pressures, proactive planning and coordinated efforts have helped maintain a stable domestic supply position.

In its Monday meeting, the committee was informed that the March requirements were fully secured and, based on current cargo planning and supply arrangements, coverage was available up to mid-April.

Unprecedented surge in global oil prices due to the blockade of Strait of Hormuz — a key waterway for ships — has also impacted Pakistan, with the government hiking the prices of both petrol and high-speed diesel by Rs55 from March 7.

While the government kept the petroleum prices unchanged, it increased the price of kerosene oil by Rs40 per litre on Sunday — the last review day under the weekly revision plan.