- Â Small OMCs not only survive but thrive to lead the way in the oil sector
- Need to understand factors influencing import and consumption trends
- Potential fallout of an Iran-Israel conflict on the world oil market
Interview with Syed Ali Abbas Abidi — an analyst
PAGE: Tell me something about yourself, please:
Syed Ali Abbas Abidi:Â I am a professional with expertise spanning various fields, including accounting, academia, law, sociology, anthropology, philosophy, criminology, economics, and content writing. I hold esteemed certifications such as Certified Public Accountant (CPA), Certified Internal Control Auditor (CICA), and Forensic Professional from the USA.
Additionally, I have earned an MBA, MA in Economics, LLB, and LLM degrees. As a committed member of professional bodies related to taxation, corporate secretarial practices, and legal associations such as the Karachi Bar and Sindh Bar, I have made substantial contributions to the legal and financial sectors. I also serve as a faculty member at a Law University, where I impart knowledge to students, lawyers, judges, police officers, army officers, bankers, and other professionals.
Holding the rank of grade 19 officer further adds depth to my professional portfolio.
Beyond my professional commitments, I am deeply engaged in teaching CSS (Central Superior Services) students, covering approximately 10 out of 12 subjects. My extensive experience and expertise across multiple disciplines have enabled me to serve as Group CFO and Vice Chancellor in past roles, further solidifying my standing in the academic and professional spheres.
PAGE: How would you comment on margins to petroleum dealers and oil marketing companies?
Syed Ali Abbas Abidi:Â Margins in the oil industry are critical for both oil traders and oil marketing companies (OMCs) as they directly impact profitability and sustainability. These margins represent the difference between the cost of acquiring petroleum products and the revenue from selling them, and they cover the various stages of the supply chain, from refining to retail. For oil traders, margins are necessary to cover operational costs. Such costs as rent, salaries, operating costs and maintenance costs. These retailers usually buy petroleum products from OMCs at wholesale prices and sell them to consumers at retail prices, keeping the difference as a margin. A trader’s margin levels can vary depending on factors such as market competition, the regulatory environment and oil price fluctuations. Fierce competition between retailers in a particular region can lead to lower profit margins as they try to attract customers through price competition. On the other hand, open methods in the oil supply chain derive margins from multiple sources that include:
Refining margins:Â Open methods earn margins from the refining process, which reflects the cost of oil and the difference in income from the sale of refined oil products. These margins are influenced by factors such as refinery efficiency, the price of crude oil and the market demand for certain products.
Distribution margins:Â OMC costs associated with transporting petroleum products from refineries to distribution centres and ultimately to retail outlets. Marketing margins are calculated based on transportation costs and logistics involved in ensuring timely and efficient delivery to various markets.
Marketing margins:Â OMCs invest in marketing activities to promote their branded petroleum products and differentiate themselves from competitors. Marketing margins include expenses related to branding, advertising and promotional campaigns designed to increase brand awareness and customer loyalty. Various factors such as market conditions and regulatory practices affect margin dynamics for both oil marketers and OMCs, technological development and geopolitical development. Fluctuations in the price of oil, changes in consumer behavior and changes in government regulations can all affect the margin level and profitability of the oil industry.
In summary, margins are critical to the financial performance of oil traders and OMCs, reflecting balance. Between costs and revenues at different stages of the oil supply chain. Understanding and effectively managing margins is essential for oil companies to remain competitive and sustainable in a dynamic and evolving market environment.
PAGE: What role are smaller OMCs playing in the sector and how do they survive in the competitive environment?
Syed Ali Abbas Abidi:Â Smaller oil marketing companies (OMCs) play an important role in the oil sector, although they face challenges in a highly competitive environment dominated by large players. Here is an overview of the role of smaller OMCs and their strategies for survival:
Role of smaller OMCs
Niche focus:Â Smaller OMCs often create a niche market by focusing on specific segments or areas which larger competitors may not have. strong presence in. They can serve niche markets such as rural areas, specialised industries or environmentally conscious consumers looking for alternative fuels.
Flexibility and adaptability:Â Smaller open coordination methods are more agile and flexible to respond to market changes and customer demands than larger companies. This flexibility allows them to quickly adapt to changing market dynamics, regulatory changes and emerging trends.
Local market experience:Â Smaller OMCs often have in-depth knowledge of local market conditions, customer preferences and the regulatory framework. This local knowledge allows them to more effectively adapt their products and services to the specific needs of their target markets.
Innovative offerings:Â Smaller OMCs can differentiate themselves from larger competitors by offering innovative products, services or business models. This may include the introduction of environmentally friendly fuels, the development of loyalty programs or the provision of additional services such as vehicle maintenance and roadside assistance.
Partnerships and alliances:Â Cooperation with other stakeholders such as local distributors, retailers or technology. service providers can increase the possibilities of smaller open coordination methods and coverage. Strategic partnerships allow them to leverage complementary strengths and resources to compete more effectively in the marketplace.
Survival strategies
Cost efficiency:Â Smaller OMCs often focus on optimising operational efficiency and controlling costs to remain competitive. They can streamline processes, negotiate favourable supply contracts and use technology to reduce overall costs.
Excellent customer service:Â Providing exceptional customer service and building strong customer relationships can be key for smaller OMCs. By offering personalised support, timely delivery and responsive communication, they can improve customer satisfaction and loyalty.
Revenue stream diversification:Â To reduce risks associated with fluctuations in oil prices or market demand, smaller OMCs can diversify their revenue stream by expanding to related industries such as lubricants, automotive services or renewable energy.
Focus on sustainability:Â Adopting sustainable practices and green initiatives can be of interest to environmentally conscious consumers and regulators. Smaller OMCs can invest in renewable energy solutions, carbon offset programmes or fuel efficiency initiatives to demonstrate their commitment to sustainability.
Continued innovation:Â Success by investing in R&D, technology innovation and product innovation is critical. for smaller OMCs to remain competitive and relevant in an ever-evolving market environment.
In conclusion, it can be said that smaller OMCs play an important role in the oil industry by providing specialised services, local expertise and innovative solutions. Using their flexibility, market knowledge and strategic partnerships, they can navigate the competitive landscape and succeed alongside their main competitors.
PAGE: What contribution does the Competition Commission of Pakistan (CCP) make when it comes to protecting the end-user?
Syed Ali Abbas Abidi:Â The Competition Commission of Pakistan (CCP) plays a vital role in protecting the interests of end-users by promoting competition, preventing anti-competitive practices and ensuring fair market conditions. This is how CCP promotes consumer protection:
– CCP monitors market structures to identify and address monopolistic practices that may restrict competition and harm consumers. By implementing antitrust laws and regulations, the CCP ensures that monopolies or incumbents do not abuse their market power to exploit consumers through higher prices or reduced choices.
– CCP investigates complaints and conducts investigations into anti-competitive activities such as price-fixing, collusion, bid-rigging and abuse of dominance. By holding violators accountable and imposing penalties for such practices, CCP creates a level playing field for businesses and protects consumers from unfair business practices.
– CCP promotes market transparency by requiring companies to disclose relevant information to consumers, such as prices, terms of service and product information. Transparent marketing practices allow consumers to make informed choices and increase competition by facilitating comparison shopping.
– It protects consumer rights by raising awareness of competition issues, consumer laws and remedies. Through educational campaigns and awareness programs, CCP empowers consumers to protect their rights and seek redress for unfair or deceptive business practices.
– CCP reviews mergers and acquisitions to assess their potential impact on competition and consumer welfare. By assessing factors such as market concentration, barriers to entry and efficiency, CCP ensures that mergers do not lead to anti-competitive effects that harm consumers, such as higher prices or lower product quality.
– In addition to enforcing competition laws, CCP cooperates with other regulatory agencies to enforce consumer protection laws and regulations. By addressing false advertising, product safety and unfair business practices, CCP increases consumer confidence in the marketplace.
– CCP aims to reduce barriers to new market entry and thereby promote competition and innovation. By removing regulatory barriers, promoting entrepreneurship and facilitating market entry, CCP creates opportunities for new companies to enter and compete, ultimately benefiting consumers through lower prices, better quality and wider choice.
In conclusion, the Competition Commission of Pakistan (CCP) plays a key role in protecting the interests of end users through the promotion of competition, the prevention of anti-competitive activities, the promotion of consumers and the provision of fair market conditions. Through its enforcement, advocacy and regulatory activities, CCP promotes the creation of competitive markets where consumers benefit from choice, quality and affordability.
PAGE: Import and consumption trends of crude oil and refined petroleum products fluctuate with economic cycles. How would you comment from the perspective of Pakistan?
Syed Ali Abbas Abidi:Â From Pakistan’s point of view, import and consumption trends of crude oil and refined petroleum products are closely related to business cycles and many other factors. Here is a comment on these trends:
– Economic cycles, characterised by periods of growth and contraction, directly affect energy demand in Pakistan. During periods of economic growth, such as increased industrial activity, urbanisation, and infrastructure, demand for petroleum and refined petroleum products tends to increase as industry, transportation, and homes require more energy.
– The performance of energy-intensive industries such as manufacturing, construction and transportation has a significant impact on import and consumption trends for petroleum and refined petroleum products. These sectors increase the demand for fuels such as petrol, diesel and jet fuel, which reflects the overall economic performance of the country.
– Government policy and subsidies also play a crucial role in shaping import and consumption habits. Subsidies for petroleum products, designed to soften the impact of high energy prices on consumers and industry, can affect consumption levels and import volumes. Changes in government policy, such as changes in fuel prices or tax rates, can affect energy demand and import trends.
– Pakistan is highly dependent on imports to meet its energy needs as domestic production of petroleum and petroleum products is insufficient to meet demand. Fluctuations in global oil prices, geopolitical tensions and supply disruptions in key oil-producing regions could affect import volumes and increase volatility in Pakistan’s energy market.
– The growing awareness of environmental issues and the global transition to renewable energy sources are also affecting Pakistan’s import and consumption trends. Government actions to promote renewable energy projects, reduce carbon dioxide emissions and diversify energy options may affect the demand for traditional fossil fuels in the long term.
– Investments in infrastructure development, such as transport networks, power plants and energy-efficient technologies, can affect energy consumption patterns and import requirements. Improving energy efficiency in various sectors can help curb the growth of energy demand and reduce dependence on imported petroleum products.
– Pakistan’s import and consumption trends are also influenced by external factors such as global economic conditions, geopolitical developments and international oil market dynamics. Changes in global oil market prices, supply and demand balances and exchange rates can affect the cost of imported petroleum products and thus Pakistan’s consumption patterns. In summary, Pakistan’s crude oil and refined petroleum product import and consumption trends are closely related to business cycles, government policies, energy security, environmental considerations, and infrastructure development and global market dynamics. Understanding these factors is essential for policymakers, industry stakeholders and consumers to navigate the complex terrain of Pakistan’s energy landscape and ensure a sustainable and sustainable energy future.
PAGE: What could be the impact of the Iran-Israel conflict on crude oil prices?
Syed Ali Abbas Abidi:Â If a full-scale war breaks out between Iran and Israel in 2024, the global oil market is likely to experience major disruption, causing a sharp increase in the price of oil. Here is a detailed analysis of the possible effects:
– Both Iran and Israel are major players in the Middle East, a region known for its significant oil reserves and production. A conflict between the two countries could disrupt oil production and exports in the region, resulting in reduced global oil supplies.
– Iran, one of the world’s largest oil producers, could face military attacks on its oil infrastructure, including refineries, pipelines and export terminals. Such attacks would disrupt Iran’s ability to produce and export oil, which in turn would further limit global supplies.
– An outbreak of war between Iran and Israel would increase geopolitical tensions in the region, causing concerns about the stability of oil reserves in oil-importing countries. This uncertainty would force countries to accumulate oil reserves, which would increase the global oil market.
– The Strait of Hormuz, an essential hub through which a significant part of the world’s oil exports pass, could become a focus of conflict. Iran has previously threatened to close the strait in response to hostilities against it. Closing the strait would seriously disrupt oil supplies, exacerbate supply shortages and raise prices.
– High tensions and the threat of supply disruptions have triggered speculative trading in the oil futures market, which would lead to higher prices. Investors would try to hedge against potential supply disruptions by buying oil futures, creating a “fear premium” that increases price volatility.
– A rise in oil prices would have a far-reaching impact on the global economy, affecting energy-dependent industries, transportation costs and consumer spending. An increase in fuel costs would increase production costs for companies and could lead to inflationary pressures and lower economic growth.
– Oil-producing countries, particularly members of the Organisation of the Petroleum Exporting Countries (OPEC), may respond to supply disruptions by increasing production to stabilize prices. However, their ability to compensate for the loss of Iran’s oil exports may be limited depending on the severity of the conflict.
A continued conflict between Iran and Israel could cause permanent disruptions in the global energy landscape. Countries can seek to diversify their energy sources and reduce dependence on Middle Eastern oil by accelerating the transition to renewable energy and alternative fuels. Ultimately, a full-scale war between Iran and Israel in 2024 will undoubtedly have profound effects on the entire world oil market, leading to supply disruptions, price spikes and increased geopolitical tensions. This underlines the importance of diplomatic efforts to prevent conflicts and ensure the stability of energy supplies in an interconnected world.