Pakistan OMCs: Lower Brent will fail to rescue volumes
We study the impact of lower Brent crude prices on two fundamentals of the downstream oil space, product pricing and demand, where immediate short term inventory loss risk from downward revisions are outweighed by the organic demand growth outlook
Looking at pricing and demand over a span of 15yrs, incorporating monthly data sets for retail prices, Brent crude average and MS/HSD sales we highlight the sticky down nature of MS and HSD prices (tendency to rise rather than fall), accompanied by marginal demand sensitivity (incremental demand in relation to price) as detriments to volumetric growth
Ascertaining sensitivity to monthly retail prices for MS and HSD with average Brent prices (with 1M lag due to import parity pricing) we find 15YR correlation of 0.49/0.46 having lessened over the past 5yrs (0.38/0.34) and are generally more noticeable when Brent prices rise rather than fall
Our analysis of marginal propensity of consumption for MS and HSD vs. shifts in Brent average prices reveals negative 0.18x/0.26x average running correlation (inverse relation between price and sales), underpinned by greater variation in MS sales, generally gaining traction during periods of Brent's rise
We believe POL prices are not heading lower anytime soon (IMF, fiscal situation), weakening organic demand (substitution effect, grey/smuggled market). APL remains our top pick in the space, with sustained market shares and stable related party arrangements.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.