LAHORE The government is likely to further increase the profit margin of Oil Marketing Companies (OMCs) by at least Rs0.35 per liter on petrol and diesel, while it has already raised the companies profit share by 13-16 paisa per liter on diesel. According to industry sources, the government has initiated the process to jack up Oil Marketing Companies (OMCs) margins on regulated products in a phased manner, which is evident from 13-16 paisa per liter raise in OMCs margin on diesel and petrol by OGRA in its recent oil price notification. Experts believe where that the big OMCs would get benefit, while the small OMCs which were having liquidity constraints would get a breather given the fact that their product mix is highly skewed towards petrol and diesel. Thanks to the govts renewed focus on OMCs which are having liquidity constraints amid circular debt, have provided them a breather. Presently diesel, which contributes around 34 percent of the total oil sales in Pakistan, its margins on a per liter basis are almost 3 year high at Rs1.48 per liter. Last time the similar margin was witnessed in November 2008 when international oil crude oil prices were hovering around $50-55 per barrel. Nauman Khan, an energy expert, in its note, observed that diesel margins peaked at around Rs1.5 per liter some where around June-July 2008 when international crude oil prices were hovering at $130-135 barrel. This means that OMCs are far better now if we compare margins on absolute terms, he added. On the other hand, petrol which is preferred fuel nowadays due to CNG curtailment and power outages (higher demand from house hold generators), government has increase distribution margin to Rs1.66 per liter (up 16 per liter)- 10 month high. According to experts, the decline in the international oil prices would render into reduce deemed duty on HSD in absolute terms, which in turn would have an adverse earning impact on the refinery sector profitability going forward. Experts estimate Attock Refinery Limited (ATRL) would have major impact on account of higher proportion of HSD in its product mix while National Refinery Limited (NRL) would be least effected. Assuming constant middle distillate crack spreads, $10 per barrel change in international crude oil prices, would reduce ATRLs and NRLs annualize earning. Experts said that the tising uncertainty of global economic health has forced the international crude oil benchmark prices to currently stand around $85 per barrel, down from recent high of $113 per barrel (May 02, 2011). On the other hand, Arab Light prices (relevant to Pakistan) has also eased to recent high of US$126 per barrel (April 29, 2011), but are still hovering above US$100 per barrel which is still above our base case oil assumption of US$96 per barrel in FY12. Therefore, experts have kept oil price assumption intact but have conduct earning/Target price sensitivity assuming various price levels with worst case scenario at US$80 per barrel (Arab Light). Even in a worst case scenario, they continue to maintain a positive outlook on Pakistan Oilfields Limited (POL) and Pakistan Petroleum Limited (PPL), which are trading at implied oil prices of $69 and $54 per barrel.