ISLAMABAD:

The Oil Companies Advisory Council (OCAC) has expressed serious concern over the proposed recovery of oil inventory gains and the review of cross-subsidy mechanism, and has called for policy interventions guided by fair principles.

In a letter written to the Petroleum Division secretary, the OCAC referred to recent media reports indicating that a high-level committee had been constituted to review the cross-subsidy mechanism and examine the possible recovery of inventory gains arising from fluctuations in international oil prices. “While the industry has not received any formal communication in this regard, the matter has generated considerable concern among stakeholders,” it said.

Any precedent whereby inventory gains were recovered during periods of price increases, while inventory losses remained solely the responsibility of the industry would be inconsistent with the broader objective of strengthening Pakistan’s energy security and ensuring adequate stockholding capacity during periods of market disruption, the oil industry said.

It pointed out that the oil industry was already facing significant liquidity constraints and increasing financial pressures owing to the outstanding price differential claim (PDC) recoveries of approximately Rs66.7 billion, stagnant oil marketing companies’ (OMCs) margins, rising operating costs, increasing compliance requirements and continuous policy uncertainties. These challenges have placed considerable pressure on the sector and warrant timely policy attention to ensure a stable and sustainable operating environment.

OCAC emphasised that any policy intervention relating to inventory gains should be guided by the principles of fairness, regulatory consistency and long-term energy security, while taking into account the unique operating realities of Pakistan’s oil sector.

The industry body had also drawn attention to the market environment during March-April 2026, which reflected exceptional geopolitical developments and supply concerns enveloping global energy markets.

“Historical oil market behaviour demonstrates that inventory valuation gains realised during periods of rising prices, resulting from geopolitical developments or supply disruptions, are temporary in nature and may be substantially reduced or even converted into inventory valuation losses, following subsequent market corrections,” it argued.

Accordingly, both outcomes are inherent and unavoidable consequences of maintaining strategic stocks and should be viewed as part of a single inventory risk cycle rather than as isolated events.

Since the onset of the recent geopolitical crisis, the oil industry said that it had worked closely with the government and regulator to ensure uninterrupted availability of petroleum products, adding that the industry’s ability to maintain adequate inventories played a critical role in preserving supply continuity and market stability.

Under the applicable regulatory framework, the oil marketing companies (OMCs) are required to maintain a mandatory 20-day stock cover. These inventories, according to the industry, do not represent a commercial or speculative activity; rather, they are held to meet a statutory obligation to support economic activity and safeguard energy security. As a consequence of holding these inventories, the OMCs remain continuously exposed to fluctuations in international oil prices.

Pakistan’s petroleum supply chain operates in an environment characterised by significant dependence on imported crude oil and petroleum products. Approximately 80% of crude oil requirements, 70% of motor gasoline (Mogas) and 30% of high-speed diesel (HSD) are sourced from international markets.

“In this context, inventory valuation gains should not be viewed as extraordinary or windfall profits, but rather as one component of the broader risk-return framework associated with maintaining mandatory inventories,” the industry elaborated.

Current international market indicators for July-September 2026 suggest a relatively weak global demand outlook, a softening freight environment and a gradual easing of geopolitical risk premiums. As a result, many market observers anticipate the possibility of price corrections in the coming months, which will potentially offset a substantial portion of any valuation gains realised during the current pricing cycle.

“In view of the foregoing, we request that any proposal relating to the recovery of inventory valuation gains be evaluated in the context of the complete inventory risk cycle, the mandatory nature of inventory holdings and the potential implications for energy security, market stability and the long-term sustainability of Pakistan’s petroleum supply chain,” the OCAC said.