The demand for petroleum products has continued to slump for the second consecutive month in July, cumulatively falling by over one-third in the past two months to a multi-year low in the wake of monsoon rains and hike in their prices.
In July, the energy sales decreased to a 16-month low at 1.44 million tons, falling by 26% compared to 1.94 million tons in the previous month of June as well as a year ago in July 2021, brokerage houses reported citing the Oil Companies Advisory Council (OCAC) data on Monday.
The drastic drop in demand indicates that energy imports have slowed down. As a result, the demand for dollars has gone down in line with the government’s strategy to turn a large current account deficit into a surplus in July 2022.
The central bank reported last week that high energy imports had resulted in a five-month high current account deficit (CAD) of $2.30 billion in June 2022, taking the full-year CAD to the second highest at $17.40 billion in the previous fiscal year ended June 30, 2022.
Finance Minister Miftah Ismail has said time and again that energy imports have reduced in July.
Monsoon rains and flooding have badly impacted domestic travel. This drastically decreased the demand for petrol. Besides, the downpour in agricultural areas – where activities came to a partial halt and heavy losses were feared – has slashed the demand for diesel.
Similarly, demand for furnace oil shrank to very think following oil-based electricity generation came to minimal amid a surge in hydel and nuclear power production in the country.
Pak-Kuwait Investment Company (PKIC) Head of Research Samiullah Tariq, while commenting on the provisional electricity generation data for July 2022 said on his Twitter handle, “Low demand due to rains, full power generation from nuclear and strong hydel generation reducing the need for power generation on coal, RLNG and RFO (furnace oil). Sahiwal, Port Qasim, China Hub (all imported coal-based plants) all running around 25% load.”
Topline Securities CEO Muhammad Sohail said the oil consumption has cumulatively dropped 35% in the past two months to 1.4 million ton in July compared to 2.2 million ton in May. The passing-on of an increase in the international oil price to domestic consumers cut energy demand.
“Price elasticity of demand. High price, lower demand…(the cut in oil consumption) will save billions of dollars (in imports) but will slow down the economy,” he said on his official Twitter handle.
To recall, the government has gradually and completely withdrawn subsidies on the sale of petroleum oil products to end-consumers during May-June 2022 to fulfill IMF prerequisite condition to revive its extended $7 billion bailout package.
Ismail Iqbal Securities’ analyst Abdullah Umer said in a commentary that petroleum products sales kicked off on a dismal note during the first month (July) of the fiscal year 2022-23 in Pakistan.
“HSD (high-speed diesel) recorded lowest monthly sales in the month of July in the last 18 years while petrol sales recorded as the lowest monthly sales in July over the last six years period,” he said. “Significant increase in HSD and petrol prices, ongoing heavy spells of monsoon rains, high domestic inflation and a significant slowdown in economic activities have contributed towards the decline in petroleum product consumption during the month.”
The diesel sales declined by 38% year-on-year basis to 0.44 million ton in July which is the lowest since March 2020, AHL Research said. Similarly, the petrol sales declined by 27% year-on-year to 0.59 million ton is the lowest since April 2020, it added.
Published in The Express Tribune, August 2nd, 2022.
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