Oil sales surge to 25-month high

Crackdown on Iranian fuel smuggling and price cuts drive 15% YoY growth to 1.58m tonnes

KARACHI:

Driven by a stringent crackdown on smuggled Iranian fuel and significant price reductions in petrol and diesel, Pakistan's petroleum sales surged to a 25-month high in November 2024, reaching 1.58 million tonnes. This marked a 15% year-on-year (YoY) increase, highlighting a recovery in the energy market.

This upswing is expected to bolster government revenues through enhanced Petroleum Development Levy (PDL) collections, offering crucial insights into the interplay of economic policies and market dynamics.

According to a report by Arif Habib Limited (AHL), dated December 3, 2024, petroleum sales in November reached their highest level since October 2022. The surge reflects the impact of stricter enforcement measures targeting smuggled fuel, particularly from Iran, which has historically accounted for 15-20% of the domestic market. Speaking to The Express Tribune, Tahir Abbas, Head of Research at AHL said, these illicit products are predominantly distributed in Sindh, Balochistan, and southern Punjab.

Abbas explained that intensified restrictions over the past month have curbed smuggling, boosting legitimate sales. He pointed out that smuggling undermines fiscal revenue as the PDL is not collected, and the unregistered fuel usage is excluded from GDP calculations.

In addition to policy measures, reductions in fuel prices contributed to the rise in consumption. Petrol, or Motor Spirit (MS), and High-Speed Diesel (HSD) prices dropped by 12% and 15% YoY, respectively.

Product-wise trends

MS sales increased by 17% YoY, reaching 0.67 million tonnes in November 2024. However, these figures remained flat on a month-on-month (MoM) basis. HSD sales grew even more significantly, rising 21% YoY and 15% MoM to 0.79 million tonnes, primarily due to peak agricultural demand during the wheat and cotton harvesting seasons.

Diesel smuggling remains a pressing issue, exacerbated by its price disparity of Rs60-70 per litre compared to official rates. Despite its poor quality, many users, particularly transport sector employees, continue to opt for smuggled diesel.

Conversely, Furnace Oil (FO) sales dropped sharply, declining 55% YoY to 0.04 million tonnes. This decrease reflects Pakistan's shift towards coal, hydropower, and nuclear energy for power generation.

Sectoral, company-wise performance

Between July and November 2024 (5MFY25), total petroleum product sales grew by 5% YoY to 6.75 million tonnes. MS and HSD volumes increased to 3.18 million tonnes and 2.89 million tonnes, respectively, while FO sales fell to 0.31 million tonnes.

Among companies, Pakistan State Oil (PSO) recorded a 12% YoY rise in sales, reaching 0.80 million tonnes in November 2024. This growth was driven by a 15% increase in MS and a 16% increase in HSD sales. However, FO sales for PSO plunged by 83%, reducing its market share by 4.3% YoY to 46.2% during 5MFY25.

Shell Pakistan (SHEL) posted a 6% YoY increase in sales, while Hascol Petroleum (HASCOL) recorded a robust 15% YoY growth. In contrast, Attock Petroleum Limited (APL) saw a 10% YoY decline, lowering its market share to 8.6%.

Smuggling concerns

On the fiscal side, PDL collections climbed to Rs110 billion in November 2024, reflecting a 19% YoY and 7% MoM increase. Cumulatively, PDL collections during 5MFY25 reached Rs464 billion, marking a 16% YoY growth.

Economists and market analysts continue to emphasise the need for stricter controls on smuggling and the development of official channels for importing Iranian petroleum products. "Official imports are a positive step, provided they adhere to Oil and Gas Regulatory Authority (OGRA) standards," noted Abbas. He highlighted that smuggling not only erodes fiscal revenues but also weakens economic indicators, as smuggled products are excluded from GDP metrics.

These trends underscore the significant influence of policy interventions, energy pricing, and market forces on Pakistan's oil and gas sector, which remains a vital component of the national economy.