Petroleum demand hits 18-year low

Economic slowdown cited as reason while govt collects Rs1 trillion in levies

KARACHI:

Despite the demand for petroleum oil products hitting an 18-year low at 15.3 million tonnes in the fiscal year 2023-24, which ended on June 30, the government is estimated to have collected an outstanding Rs1 trillion in petroleum development levy (PDL) from the sale of oil products over the year.

The collection of PDL at Rs60 per litre on the sale of petrol and diesel, coupled with the full pass-through of increased global energy prices to local consumers, remained the single largest reason behind the historic plunge in demand. Additionally, the overall economic slowdown, sluggish industrial output, high inflation, and elevated interest rates discouraged industrial and commercial consumers, while households reduced their demand for commuting.

In the last month of FY24, however, the demand for petroleum products revived, hitting a 19-month high at 1.45 million tonnes. This was due to a notable cut in energy prices and the increased use of expensive furnace oil-run power plants to meet the surge in electricity demand during the scorching summer season.

Myesha Sohail, an analyst at Topline Research, reported that despite the strong performance in June, sales for FY24 totalled 15.3 million tonnes, marking an 8% drop from 16.6 million tonnes in FY23. “This marks an 18-year low (in FY24), with sales volumes similar to those last seen in FY06.” She added that oil sales have continued to decline for the second consecutive year and estimated the government collected an astonishing Rs1 trillion in PDL, 15% higher than the set target of Rs869 billion for the year.

Zayan Babar Khan, an analyst at Optimus Capital Management, noted in a commentary that FY24 sales were down 8% year-on-year, with petrol and diesel experiencing declines of 3.8% and 1.7%, respectively. “This slump was due to slower-than-expected economic recovery, elevated fuel prices, and an influx of smuggled fuel into the country.” He also mentioned that oil prices have remained high due to current global geopolitical situations and expects Brent crude to stay around $85 per barrel in the near term, driven by the peak summer driving season. “We anticipate a mild recovery in total energy sales in FY25, due to improved economic activity and a low base in FY24,” he said.

POL (petroleum, oil, and lubricant) sales increased by 4.1% month-on-month to 1.45 million tonnes in June 2024 alone. Accordingly, petrol and furnace oil sales rose by 15.4% and 53.7%, respectively, due to higher summer-driven demand, while diesel sales decreased by 11.4%. “The decline in HSD (high-speed diesel) sales was anticipated due to lower sowing activity and Eid holidays during the month.”

He recalled that petrol prices decreased by Rs17.5 per litre to Rs263.3 per litre in June 2024 as a result of lower international crude prices. Similarly, HSD’s ex-depot price decreased by Rs9 per litre to Rs269.1 per litre.

Furnace oil (FO) sales rose by 53.7% month-on-month, reaching 106,000 tonnes in June 2024 (up 6.2% year-on-year). This rise is attributed to the utilisation of FO power plants for system stability during the summer months and anticipated lower hydel generation, following reports that Neelum Jhelum Hydropower will remain off the grid for at least another 18 to 24 months, said Khan.

Company-wise Sales Sohail further added that among the listed companies, Attock Petroleum (APL) sales were 129,000 tonnes in June 2024, a 14% year-on-year fall primarily led by a 61% fall in furnace oil sales and a 22% fall in diesel sales.

Pakistan State Oil (PSO) saw a slight decline with a 2% month-on-month fall to 649,000 tonnes in June 2024. PSO’s market share in diesel and petrol stood at 46.6% and 44.2%, down 325 basis points and up 37 basis points month-on-month, respectively, in June 2024.

Shell Pakistan (SHEL) saw a 12% year-on-year and a 6% month-on-month rise to 107,000 tonnes. HASCOL sales clocked in at 38,000 tonnes, down 37% year-on-year and 8% month-on-month.