Pakistan Energy: Cracks end FY20 on stable footing, (AKD Daily, Jul 02, 2020)
AKD Daily
Pakistan Energy: Cracks end FY20 on stable footing
- POL product cracks recovered during June’20, driven higher on cautious optimism of post-COVID recoveries in developed economies and Asian refiners raising utilization to meet demand, with underlying crude benchmarks higher (June’20 Arab Light average at US$35.1/bbl up 33%MoM) taking monthly HSD/MS crack to Arab Light to average US$+7.9/+4.4/bbl, above 4QFY20 (US$5.6/-0.9/bbl) and near/above FY20 averages (US$+8.2/+1.4/bbl).
- HSFO cracks recovered 51%MoM to US$-2.7/bbl (vs. 4QFY20/FY20 avg of US$-2.9/-12.9/bbl), contrary to expectations of worsening pricing dynamics under IMO-2020 regulations (limiting HSFO usage as bunker fuel), while prices were assisted by healthy Asian refining margins as a result of recovering demand.
- Conforming with wider market expectations, Asian POL product demand has driven refined fuel demand higher, with refiners raising utilization levels to meet demand, while the overhang from recent reversal in openings in the US remains a dampener on the horizon.
- In terms of impacts at home, international POL product prices and product-wise ex-refinery prices set by the GoP show a mixed trend, where a comparison of FY20 vs. 3yr average correlations reveals higher correlations for HSD, MS and to a lesser degree HSFO in FY20 vs. 3YR avg. Moreover, taxes at import stage levied on POL products and PkR depreciation against the US$ continue to impose burdens on ex-refinery product pricing.
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