Oil demand sinks by 22% to 1.5m tons

It comes due to corrective measures to cut down imports, restricted economic activities

KARACHI:

The demand for petroleum products declined by a notable 22% to 1.52 million tons in September 2022, compared to the same month last year, as record-high prices and the cataclysmic floods restricted economic activities from resuming.

Due to the floods inundating the fields, agricultural activities came to a standstill, reducing the sale of diesel. Industrial output also reduced in the wake of the government’s corrective measures to cut down imports and cool down the then-overheated economy.

Due to the damage to cotton caused by the floods, almost 100 textile manufacturing firms are lying fully or partially closed.

Quoting Khurram Mukhtar, patron-in-chief of the Pakistan Textile Exporters Association (PTEA), Bloomberg reported that as many as 100 small mills have suspended operations due to a shortage of good quality cotton, rising fuel costs, and poor recovery of payments from buyers in flood-hit areas. Those most affected are towel and bed sheets factories.

Following low demand for electricity in the country, the sale of furnace oil also fell. Opting to reduce reliance on expensive oil-based plants, the government met the low demand for power through cheaper sources like hydel, gas and coal-fired plants.

A significant increase in the price of petrol and a massive drop in the sale of vehicles has also impacted the demand for fuel (petroleum) during the month. In September, the demand for petroleum products remained flat at 1.52 million compared to August 2022. In the period between July and September, sales witnessed a sharp drop of 23% to 4.49 million tons compared to 5.86 million tons in the same period of the last year.

Analyst at Arif Habib Limited, Muhammad Iqbal Jawaid, said in a commentary that the sale of petroleum products shrank in September owing to restricted mobility caused by the floods, a massive surge in petroleum prices, lower FO-based power generation and a drop in automobile sales.”

Hence, MS (petrol) registered a decline of 22% to 0.63 million tons in September 2022 compared to 0.80 million ton in the same month of the last year.

Similarly, high-speed diesel (HSD) volumes went down by 26% to 0.52 million in the month compared to 0.70 million ton in the same month of the past year. Whereas, furnace oil (FO) sales decreased by 25% to 0.30 million ton in September 2022 compared to 0.40 million ton in the corresponding month of the previous year.

Meanwhile, petroleum consumption remained stable during September 2022 compared to the previous month of August 2022. Demand for petrol and furnace oil fell by 1% and 5% respectively in the month compared to the previous month. Whereas, diesel sales recorded a growth of 5% in September 2022 compared to August 2022.

During the first quarter (Jul-Sep) of FY23, the sales of total petroleum products shrunk by 23% to 4.49 million tons compared to 5.86 million tons in the same period of last year.

Product-wise data showed a decline in all categories in the three-months. Accordingly, petrol sales dropped by 21% to 1.86 million ton. Diesel demand declined 30% to 1.46 million ton, while FO consumption shrunk by 23% to 0.98 million ton.

The drop in demand for petroleum products is partially seen due to the government’s corrective measures to cut down imports and partially due to compromised economic activities.

If administrative control over imports prolongs any further, the country may face increased unemployment and a drop in export earnings. Other fears include international oil prices bouncing back to over $90 per barrel after OPEC+ announced a cut in petroleum products across the world.

Published in The Express Tribune, October 5^th, 2022.

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