New pricing structure impacts fuel marketing firms

A new fuel pricing structure adopted by Omani authorities earlier this year has negatively impacted the bottom-lines of fuel marketing companies operating in the Sultanate, according to a key industry executive. David Kalife, CEO of Oman Oil Marketing Company — wholly owned subsidiary of Oman Oil Company — said the reduced margins offered on motor fuels supplied from the new fuel logistics terminal at Al Jifnain have made a significant dent in the profitability of all three marketing companies.
“There’s a decrease in our profits,” Kalife said. Asked to quantify the extent of the impact, he added: “It’s a big one; we are not talking about a few percentage points; it’s impacting our bottom-line.”
The executive made the comments at a media roundtable hosted by the company to unveil its roadmap for growth over the next seven years through to 2025.
The new price structure was implemented in conjunction with the launch of the Al Jifnain Terminal, constructed by Orpic — the nation’s refining and petrochemicals flagship — to serve as the new hub for motor fuel logistics.
In their quarterly reports presented to the Capital Market Authority (CMA), all three fuel marketing companies — Oman Oil Marketing, Shell Oman, and Al Maha — have warned that the new price structure has begun to eat into their profitability.
Oman Oil Marketing noted in its report that the company’s profit had “been much impacted following the move to the new terminal in Al Jiffnain and changes in the marketers’ margin”.
Market rival Shell Oman attributed a drop in its Q1 net mainly to “the revised margin structure for the new supply point at Al Jiffnain”.
Likewise, Al Maha reported that “the new pricing system applied by the Ministry of Oil and Gas on marketing companies has had a negative impact on gross margin”.
The company is still in negotiations with the relevant ministries to limit the impact of this new pricing policy, it stated.
Kalife confirmed that the fuel marketing firms have been involved in individual, as well as joint efforts, to persuade authorities to roll back the revised pricing structure. He also warned that, with their margins squeezed by the measure, marketing firms would find it challenging to meet their strategies for growth and maintain their customer service standards.
At the media roundtable, the Oman Oil Marketing CEO also said the company is gearing up to launch work on its latest investment — a bunkering terminal planned at the Port of Duqm. The company is also weighing partnerships with other players to make the most of the strategically located, 30,000 sq metre site within the port, he said.
The addition of LNG bunkering services to its business portfolio is also part of the company’s long-term vision for growth — an option that will be keenly explored when the demand for LNG bunker is concretely identified in the region, he added.