Oil Retail Market Grows Triples in 5 Years

Staff Report

Islamabad: Size of retail oil market in Pakistan grew by massive 3x in last 5 years to Rs146bn, thanks to significant increase in per liter OMCs margin over the last few years.

This is the reason why global firms are eying Pakistan’s oil retail market. Unfortunately, consistent fall in international oil prices over the last 4 years diluted this impact as OMCs faced huge inventory losses in retail business which eventually forced few small firms to exit due to liquidity constraints.Checking Stocks: Ogra to issue Unique ID to oil retail stations

Now with oil prices staying at lower levels, outlook for big OMCs is promising as availability of low cost financing, healthy margins and adequate storage network, may compel leading OMCs to capture market share during FY26. To recall, Pakistan’s combined annual oil retail sales of petrol and diesel is around 18.5bn liters in FY25 (up 3%YoY), whereas OMCs availed per liter margin of Rs7.9 during FY25 on these regulated retail products which remained almost flat compared to last year.

Sherman Research has assumed retail oil market to grow by 13% to Rs167bn during FY26 – outperforming average growth of 4% during last 5 years. We expect retail volumes to grow by 11% during FY26 as evident from stunning growth of 15%YoY during 4QFY25.

Retail market likely to grow by 13% in FY26, potential to grow by even 20% Pakistan’s retail sales after peaking at 24.4bn liters in FY22, nosedived to 18.5bn liters in FY25. Thus, during last 3 years (FY23-25), Pakistan’s retail sales declined by around 24%.

Sharp adjustments in local oil product prices (almost 2x) during last 3 years under IMF program and slowdown in economy (average GDP growth of 1.6% during FY23-25) remained the major factors affecting volumetric sales. Moreover, infiltration of Iranian fuel (due to higher price disparity) via border areas also affected volumetric sales.

Thus, with renewed focus by the government to curb smuggling which is causing annual loss of Rs200bn to exchequer specially on diesel, we expect retail volumes to grow by 11% during FY26.

Thus, with average volumetric growth of 11% and 2% average rise in OMCs margin (considering 5% hike in OMCs margin from 2HFY26, although OMCs are asking for 15% rise), we expect retail business to grow by 13% during FY26.

 We do not rule out possibility of higher industry growth of 19-20% in FY26 as well if government agrees OMCs proposal by end of 1HFY26,” Sherman said adding that PSO remains our top pick in energy sector PSO faced huge inventory losses over the last few years due to consistent decline in international oil prices which overshadowed robust growth in retail business.

Thus with absence of inventory gains/losses likely in FY26, we expect PSO to post robust FY26 EPS of Rs110.6. Thus, where retail business to perform well in FY26, company’s LNG business to recover sharply as RLNG related borrowings (amid circular debt) will decline, eventually reducing finance cost from Rs33bn in FY25 to Rs23.5bn in FY26.

“We expect PSO’s liquidity will improve significantly during FY26 which will help in retiring its debt level of Rs361bn – Thanks to 1) gradual recovery of old dues 2) further improvement in cash rich retail business and 3) lower liquidity requirement for inventory after falling oil prices,” Sherman said.