CY19 was not a good year for the downstream oil marketing companies as volumetric sales and oil consumption went down and currency depreciation adversely impacted the sector profitability. Shell Pakistan (PSX: SHEL) was among those that were more affected because the company relies largely on imports.

It now looks that 2020 will be worse in terms of petroleum demand and consumption. After bearing loss in CY18 and CY19, Shell Pakistan's financial performance for the first quarter of 2020 (1QCY20) paints a gloomy picture. Why? Apart from weaker macroeconomic outlook and currency depreciation in 2018 and 2019, profitability at SHEL has also been affected by the volatility in international crude oil prices. These factors are still at play. What makes the situation worse is the impact of coronavirus pandemic on the economy as well as historically low oil prices.

The company posted an after tax loss of Rs4,332 million compared to the profit of Rs257 million in the same period last year. During the first quarter ending March 2020, it is expected that crashing oil prices resulted in exceptional inventory losses for the company – global crude oil prices fell by more than 60 percent in the period from January till March 2020.

Apart from higher inventory losses, Shell Pakistan's financial performance was also impacted by lockdown across the country during the time period – translating into not only declining diesel sales due to a halt in industrial activity, but also petrol sales due to lower transport activity and mobility in the country.

Some respite came from slower growth in finance cost Finance cost that increased by more than 4 times year-on-year for Shell Pakistan in 2019 constituting mostly of markup on short term borrowings offered some respite due to significant decline in the interest rate during the quarter. Lower interest rate environment and recovery in petroleum consumption would be the two drivers of growth for Shell going forward.