Kerosene Oil Price Rises by PKR 4.09 Per Liter: Refineries See Minor Positive, OMCs Neutral

What the kerosene price hike changed

The Oil and Gas Regulatory Authority (OGRA) has announced an increase in the price of kerosene oil by PKR 4.09 per liter, effective immediately. This adjustment sets the new retail price at PKR 231.14 per liter, up from the previous PKR 227.05 per liter. The increase represents a roughly 1.8% rise in the price of kerosene.

Why it matters for refinery and OMC stocks

This price adjustment for kerosene oil, a petroleum product, has implications for companies involved in its production and distribution. For refineries, a higher product price can potentially improve their refining-margin, which is the difference between the cost of crude oil and the selling price of refined products. For Oil Marketing Companies (OMCs), which distribute and sell kerosene, the impact is generally neutral on profitability due to the regulated nature of their margins, though it can affect working capital requirements.

Which stocks, and why

Refineries like National Refinery, Attock Refinery, and Pakistan Refinery could see a minor positive impact. Kerosene is one of the many products they produce from crude oil. If the increase in the retail price translates into a higher ex-refinery gate price, it would slightly improve their crack spread for kerosene. While kerosene constitutes a relatively small portion of their overall product mix, any improvement in product pricing contributes positively to their overall refining margins. The influence is considered low because the percentage increase is small, and kerosene is not their primary product.

For Oil Marketing Companies (OMCs) such as Pakistan State Oil, Attock Petroleum, and Shell Pakistan, the impact is likely neutral. OMCs operate on regulated margins set by OGRA. When product prices increase, these companies typically pass the cost directly to consumers. While higher prices mean increased revenue from kerosene sales, their profit per liter (margin) usually remains fixed in absolute terms, not as a percentage of the price. This means their profitability per liter of kerosene sold does not change. However, a higher price does increase the working capital needed to finance their inventory, which could be a minor negative. Given the small volume of kerosene relative to other fuels like petrol and diesel, the overall effect on their earnings is expected to be negligible.

What to watch

Investors should monitor future OGRA announcements regarding petroleum product pricing and any changes to the OMC margin structure. For refineries, observing overall refining crack spreads for all products, not just kerosene, will provide a more comprehensive view of their profitability. For OMCs, tracking inventory levels and working capital requirements in response to price changes across their entire product portfolio will be important indicators.