Trade
5 years ago

Rising oil prices erode BPC's profit margin

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The state-run Bangladesh Petroleum Corporation (BPC) has been incurring losses from oil trading over the past one and a half months due to an uptrend in oil prices in the international market.

Even in early February it earned profit to the tune of Tk 100 million (10 crore) per day, BPC sources said.

The BPC incurred a loss of around Tk 110 million from trading on Tuesday, a senior BPC official told the FE on Wednesday.

He said the state-run oil corporation had been incurring losses for the past several weeks as oil prices globally hit this year's high.

The state-run corporation was counting losses from trading in furnace oil, diesel and kerosene at the rates of around Tk 8.80 per litre, Tk 5.10 per litre and Tk 4.70 per litre respectively, he said.

Industry insiders said the crude oil hit a 2019 high this week, pushed up by tightening supplies globally, a slowdown in the US production and concerns about the global economy.

The BPC official expressed his fear that the losses might increase further, if the oil prices in the international market climbed further.

The price of Brent crude, the benchmark in the international oil price, climbed up to $ 70 per barrel on Tuesday from $47 in June 2017 and below $30 in early 2016.

Officials said the state-owned trading agency was facing losses in oil trade as the costs-import spending along with 31 per cent tax and freight charges plus margins for the company and dealers-ran higher than the retail prices.

The appreciation of the US dollar against the local currency BDT also caused losses to the BPC, the senior BPC official added.

If one litre of diesel in the international market costs Tk 100, the BPC's overall spending to supply the fuel at the retail level stands at around Tk 135 per litre, after paying all taxes and margins, the official added.

The BPC imports around 4.0 million tonnes of diesel and 200,000 tonnes of furnace oil every year.

It currently purchases petroleum products at higher prices from the international market and sells at the government-fixed rates, now far lower than the global prices, resulting in bulging losses caused to the state-owned corporation.

The BPC had attained profits through trading in petroleum products, namely furnace oil, diesel and kerosene, over three consecutive years from September 2014 to October 2017 as the international oil prices were at the low level.

After October 2017 the BPC started witnessing its profit margin swing both ways. Sometimes it even reached break-even points. All these happened due to the fickle international oil prices, market insiders said.

The BPC already sought Tk 85 billion in subsidy from the finance ministry to foot oil import bills for the fiscal year (FY) 2018-19.

The current price of furnace oil at the retail level is Tk 42 per litre, diesel and kerosene Tk 65 and octane and petrol Tk 89 and Tk 86 respectively.

The government in an executive order on April 24, 2016, fixed the prices which still remain unchanged.

It imported 6.7 million tonnes of petroleum products like diesel, jet fuel, furnace oil and octane in FY '18.

In FY '19, the BPC might import around 7.5 million tonnes of petroleum products.

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