Oil sales soar 25% in October

Price cut, improved economy fuel increase in demand for petroleum products

KARACHI:

The demand for petroleum products soared 25% to 1.26 million tons in October 2023 compared to the previous month, fuelled by a reduction in prices and gradual improvement in economic activities.

The rise in demand for oil products is a sign of recovery in Pakistan’s gross domestic product (GDP), which reflects the central bank’s projection of a modest economic growth of 2-3% in the current fiscal year. In the previous year, the economy grew a negligible 0.3%.

Large-scale manufacturing (LSM) industries and the agriculture sector, which are leading consumers of petroleum products, have remained on an uptrend with the growth in their production levels. This also supports the central bank’s narrative that the economy is showing early signs of revival.

The recovery has particularly been noticed in sales of automotive, cement and petroleum industries in recent months.

Topline Research analyst Myesha Sohail, in a commentary, said that the average petrol price for October 2023 came down to Rs303 per litre compared to Rs318 in September 2023.

Similarly, the average diesel price dropped to Rs311 per litre in October from Rs321 in September.

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The breakdown of energy sales data shows that the demand for motor spirit (petrol) rose 12% to 0.58 million tons in October as compared to 0.52 million tons in September. Motorcyclists are the leading consumers of the fuel, followed by car drivers.

Sales of high-speed diesel (HSD) spiked 42% to 0.56 million tons in the month under review compared to 0.39 million tons in the prior month, which indicated a gradual turnaround in economic activities as the fuel was mainly used by the industrial and agricultural consumers.

Market talk suggests that the significant increase in demand for diesel partly stemmed from control over fuel smuggling from neighbouring Iran.

On the other hand, the demand for furnace oil decreased 37% to 0.05 million tons in October following the recent addition of low-cost power plants based on local (Thar) coal.

Furnace oil is one of the most expensive fuels for power production. The government is reducing reliance on oil-based power plants at a time when low-cost options are readily available.

“For FY24, we anticipate a potential recovery in ex-furnace oil OMCs’ (oil marketing companies) sales, which are estimated to increase up to 5%. This is primarily attributed to a pickup in economic activity, where interest rates are expected to decline in the latter half of FY24, coupled with favourable agricultural crops,” said Sohail.

The demand for petroleum products, however, stood 24% lower in October when compared with the same month of last year. It cumulatively went down 18% year-on-year in the first four months (Jul-Oct) of current fiscal year.

Arif Habib Limited analyst Muhammad Iqbal Jawaid, in his report, said that total petroleum sales dropped 24% to 1.26 million tons in October on a year-on-year basis.

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“This decline can be attributed to several factors, including increased prices of petroleum products, a general economic slowdown and a reduction in consumption of furnace oil due to reliance on new coal-based power plants,” he said.

Specifically, sales of motor spirit registered a decline of 15% year-on-year in October. Similarly, HSD sales showed a significant dip of 21%. Furnace oil was the most heavily impacted as its sales plummeted 74%.

Overall, in the first four months of current fiscal year, sales of petroleum products dropped 18% year-on-year to 5.08 million tons as compared to 6.15 million tons in the corresponding period of last year.

Product-wise data showed a reduction in all categories with sales of motor spirit, HSD and furnace oil coming in at 2.43 million tons, 2 million tons and 0.40 million tons, respectively.

Published in The Express Tribune, November 3^rd, 2023.

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