” Petroleum demand hits 21-month high ” | GNN INFO

The demand for petroleum oil products reached a 21-month high at 1.15 million tonnes in March compared to the same month last year, indicating a return to stability in the domestic economy.

According to data from the Oil Companies Advisory Council (OCAC), compiled and reported by research houses, the sale of oil marketing companies (OMCs) surged by 4% in the month under review compared to the same month last year, and rose by 3% compared to the previous month of February.

Excluding the low demand for outdated products such as furnace oil (FO), sales of premium products including petrol and diesel surged by 9% in March 2024 on a year-on-year (YoY) basis and by 4% on a month-on-month (MoM) basis. Topline Research analyst Ayesha Sohail commented that “the increase in YoY oil sales comes after 21 months. Improvement in oil sales signals some stability in economic activities.”

The demand for petroleum products could have been higher than reported, considering there were no smuggled products available in the market. The possibility of advanced purchase of premium products due to anticipated price hikes cannot be ruled out, potentially contributing to increased bulk sales in March.

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Additionally, the beginning of the wheat harvesting season increased demand for diesel, which is mostly used in tractors for harvesting purposes. Moreover, a gradual uptick in car sales supported a turnaround in demand for petroleum products.

On a MoM basis, the jump in oil marketing companies’ sales is attributed to a lower base amid fewer days in February 2024 and “expectations of an increase in fuel prices.” On a YoY basis, excluding furnace oil, sales are up by 9%. However, “the sale would be even higher if there were no smuggling of oil from Iran. As per media reports, around 4,000 tonnes of oil are being smuggled every day.”

Motor spirit (petrol) sales increased by 3% YoY and 5% MoM to 573,000 tonnes, while HSD sales increased by 17% YoY and 4% MoM to 463,000 tonnes in March 2024.

FO sales fell by 48% in March compared to the same month last year, and by 11% compared to the previous month of February, to 44,000 tonnes. This decrease is attributed to lower power generation from expensive FO-based power plants, in the presence of cheaper nuclear and coal-based plants.

However, the demand for petroleum products fell cumulatively by 11% to 11.3 million tonnes in the first nine months (Jul-Mar) of the current fiscal year 2023-24, compared to 12.8 million tonnes in the same period last year. Sales reduced by 5% excluding FO in the period under review.

The significant increase in the price of premium products has adversely impacted the purchasing power of the majority of end-users, heavily contributing to the shrinkage in demand over the nine months.

Sohail stated that average petrol prices rose by 19% in the nine-month period under review, to Rs281.67/litre compared to Rs235.71/litre last year. This contributed to a 5% YoY decrease in petrol sales to 5.3 million tonnes cumulatively in the three quarters of FY24, compared to 5.6 million tonnes in the same period last year. Similarly, average diesel prices rose by 16% to Rs289.31/litre in the nine-month period, from Rs248.5/litre last year, contributing to a 5% YoY decrease in HSD sales.

For the full year FY24, the analyst anticipates that total sales (excluding FO) will remain under pressure due to oil smuggling from Iran, driven by higher local prices. OMC sales could further decline if the government increases the PDL from Rs60/litre to Rs100/litre or imposes an 18% GST.

Published in The Express Tribune, April 3^rd, 2024.

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