Petroleum consumption has increased significantly over the last two years due to lower prices despite the government not passing on the entire impact of lower prices to consumers. Volumetric sales for key petroleum products (motor gasoline, furnace oil and diesel) for 2016 show an increase of 12 percent year-on-year in 2016, whereas the growth over 2014 cumulative figure has been over 20 percent.
Growth in motor gasoline has been quite robust in the low-price environment, rising by 17 percent year-on-year in 2016, and by 19 percent in 1HFY17. High speed diesel has also spurred during CY16 by 10 percent year-on-year, and by 16 percent year-on-year in 1HFY17. And despite a decline in the use of furnace oil - as imported gas has become preferable fuel for incremental demand the dependence on the fuel has not completely worn off. Volumetric imports have also followed the trend in the sales.
Interestingly, in the latest month, the consumption of furnace oil has actually seen a jump of around 35 percent year-on-year. On the other hand, motor gasoline continued to soar in December 2016.
Will the pace in petroleum consumption continue in 2017? Some are eyeing a slowdown given the rising oil price. Others however, see consumption of retail fuels to continue to guide the overall petroleum consumption due to increased industrial activity under CPEC. At the same time, the oil marketing companies have become more competitive than ever with their versions of premium fuel, which is likely to drive growth in fuel consumption in 2017 as well. As for furnace oil, the squeeze in consumption predicted earlier due to increased use of imported LNG might also not hold as the government would like to meet its commitments to slowly reducing the load shedding to zero by 2018, which might not be possible without furnace oil.
While the government is not worrying about consumption in the rising oil price environment, it might be facing a threat of lower revenues from the petroleum products. As oil prices head north, the government is gradually reducing the GST, which means that tax collection will be much less in 2017.
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