Petrol, diesel sales fall after end of subsidy

Expert says significant increase in petroleum prices slashed their consumption

KARACHI:

The demand for petrol and diesel dropped 12% and 16% respectively in June 2022 compared to the previous month, snapping a long uptrend in sales of petroleum products in the wake of withdrawal of subsidies and imposition of taxes.

Petrol is mostly used by two, three and four-wheeler vehicles, while diesel is mostly consumed by the industrial and agriculture sectors.

The demand for petrol decreased to 702,000 tons in June compared to 776,000 tons in May. Sales of diesel dropped to 713,000 tons in June compared to 776,000 tons in the previous month, Topline Research reported while citing the Oil Companies Advisory Council (OCAC) data on Friday.

“Significant increase in petroleum product prices resulted in a reduction in their consumption,” Islamabad-based energy expert Ammar Khan said while talking to The Express Tribune.

The consumption of diesel may have partly decreased in the agriculture sector following “a notable delay in the sowing of major summer (Kharif) crops including paddy (rice) and cotton due to unavailability of water in June,” said Sindh Abadgar Board Vice President Syed Mahmood Nawaz Shah.

Besides, the wheat harvesting season came to an end in May. “Farmers use diesel in tractors for land levelling in June ahead of the sowing of paddy and cotton. They also use the fuel heavily during the wheat harvesting season (March-May),” he added.

However, a large section of farmers may have prepared land in June for sowing the crops on hopes of water supply soon. “Paddy can be sown despite a notable delay unlike cotton which cannot be planted if the sowing time has passed,” he said.

The government has increased the petrol price by 65.98% (or Rs98.99) to Rs248.74 per litre in the past one month (May 27 to July 1). It has revised upwards the diesel price by 91.84% (or Rs132.39) to Rs276.54 per litre during the same period.

The increase in prices came following the complete withdrawal of subsidies on sales of petroleum products and imposition of petroleum development levy.

It has imposed the levy of Rs10 per litre on petrol and Rs5 per litre on all other petroleum products including diesel with effect from July 1, 2022.

“Petroleum product sales may further drop by 5-10% in July … and keep falling over the next three to four months in the backdrop of the price hike,” Khan said.

The government has announced that it will continue to increase the petroleum development levy in phases till it reaches Rs50 per litre.

The demand for diesel may not drop as feared in July after the government temporarily suspended gas supply to the industries including the major export earner – the textile sector – with effect from Friday.

Earlier, the PTI government fixed petrol and diesel prices at Rs149.86 per litre and Rs144.15 per litre respectively in February for a period of four months to help industries and households avoid the impact of a significant surge in international crude prices.

The current PML-N government, however, increased the prices to win back the IMF’s $6 billion loan programme, which is a must to avoid default on international payments.

Overall sales

Sales of all petroleum products dropped 11% on a month-on-month basis to 1.94 million tons in June. They, however, remained almost flat compared to June 2021, Topline Research reported.

Sales of furnace oil dipped 2% in June compared to May, as the government used the fuel for electricity generation after prices of coal and RLNG shot up in the global market.

Cumulatively, in the entire fiscal year 2022, which ended on Thursday, the petroleum product sales surged 16% to 22.59 million tons compared to the prior fiscal year.

Published in The Express Tribune, July 2^nd, 2022.

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