Oil demand reaches a 21-month peak

In March, the domestic economy showed signs of stabilization as the demand for petroleum oil products surged to a 21-month high of 1.15 million tonnes, as compared to the same month the previous year.

The sale of oil marketing companies (OMCs) increased by 4% in the month under review when compared to the same month last year and by 3% when compared to the previous month of February, according to data from the Oil Companies Advisory Council (OCAC), which is collated and published by research firms.

With the low demand for out-of-date fuels like furnace oil (FO) excluded, premium product sales, which include gasoline and diesel, increased by 4% month over month and by 9% year over year in March 2024. Analyst Ayesha Sohail of Topline Research stated, “The increase in year-over-year oil sales comes after 21 months.” An increase in oil sales indicates some stability in the economy.

With no smuggled goods on the market, the demand for petroleum products may have been larger than previously stated. It’s not impossible to discount the chance that premium goods purchases made in advance of expected price increases would result in higher bulk sales in March.

Furthermore, the start of wheat harvest season raised demand for diesel, which is mostly utilized in tractors for harvesting. In addition, a steady increase in automobile sales helped to revive the market for petroleum products.

The spike in sales for oil marketing organizations month over month is ascribed to “expectations of an increase in fuel prices” as well as a smaller base due to fewer days in February 2024. Sales are up 9% year over year when furnace oil is taken out of the equation. But “the sale would be even higher if there were no Iranian oil smuggling.” Approximately 4,000 tons of oil are smuggled every day, according to media estimates.

In March 2024, sales of motor spirit (petrol) rose by 3% year over year and 5% month over month to 573,000 tonnes. Sales of HSD, on the other hand, climbed by 17% year over year and 4% month over month to 463,000 tonnes.

Sales of furnace oil decreased to 44,000 tons in March from the same month the previous year and from February, when sales were down 11%. This decline is explained by the fact that less power is produced by pricey FO-based power stations in the presence of less costly nuclear and coal-based facilities.

However, compared to 12.8 million tonnes in the same time last year, the demand for petroleum products decreased cumulatively by 11% to 11.3 million tonnes in the first nine months (Jul-Mar) of the current fiscal year 2023–24. Sales decreased by 5% over the reviewed period, excluding furnace oil.

The bulk of end consumers’ purchasing power has been negatively impacted by the notable price increase of premium items, which has significantly contributed to the decline in demand over the last nine months.

According to Sohail, the average price of gasoline increased by 19% during the course of the nine-month period under consideration, from Rs235.71/litre to Rs281.67/litre. Due to this, gasoline sales fell by 5% year over year in the first three quarters of FY24, totaling 5.3 million tonnes, as opposed to 5.6 million tonnes during the same time in FY23. In a similar vein, average diesel prices increased by 16% over the nine months to Rs289.31/litre from Rs248.5/litre the previous year, which resulted in a 5% decline in HSD sales year over year.

The analyst predicts that oil smuggling from Iran, spurred by increased local pricing, would continue to put pressure on overall sales (excluding furnace oil) for the entire fiscal year FY24. Additionally, if the government implements an 18% GST or raises the petroleum development fee from Rs60 to Rs100 per liter, OMC sales may decrease even more.

Among the companies on the list, Attock Petroleum reported 103,000 tonnes in sales in March 2024, a 9% year-over-year and 8% month-over-month decrease. Pakistan State Oil reached 594,000 tons in March 2024, up 5% month over month and 11% year over year. Shell Pakistan had a 6% annual growth and a 5% monthly increase to 94,000 tonnes.