Petroleum sales the same

Petroleum consumption in the country is at never-been-there-before level as automobile sales break records, and development and construction activities move forward. October sales numbers from Oil Companies Advisory Council (OCAC) were released last week, showing continued growth trajectory albeit at some slowing pace.

Total industry sales of petroleum products for October 2017 were above 2.4 million tonnes, up by five percent, year-on-year. The growth for the month continued to be led by Motor Gasoline (MS), which grew 9 percent year-on-year, while High Speed Diesel (HSD) and Furnace Oil (FO) increased by 2 percent and 4 percent, respectively against the same period last year. On the other hand, the sequential growth (month-on-month) shows that HSD was up by 25 percent, while FO climbed by 15.4 percent in October 2017.

A look at 4MFY18 aggregates for the three key products verify the ongoing trend: The retail fuel – HSD and petrol were both the leaders, growing by around 15-16 percent on a year-on-year basis, while the furnace oil remained the laggard. This trend was also replicated in the import volumes for 4MFY18 as well as the for sales and imports for 10MCY17 period.

However, the increased petroleum consumption is not all good news. Pakistan imports majority of its petroleum products, and the surge in petroleum demand has offset the gains of low world oil prices to the economy.

And so instead of a cut in import bill amid low oil prices in the last four years, increased petrol consumption due to pricing policy and rising automobile sales have continued to fuel imports with no relief to the current account deficit.

The government has recently increased price of MS and HSD by around Rs2.49 and Rs5.19, respectively. Will this take care of the problem at hand? Not likely as the downstream sector is brimming with competition in the retail fuel segment: First it was petrol quality up-gradation war, (which might have turned sour just recently, and the column will pick this up at another time), and now it is the deregulation of HSD that is likely to increase competition, and hence consumption. Also, the overall picture with increase sales of tractors, trucks and passenger cars, and ongoing work on CPEC and infrastructure projects is working in favour of petroleum consumption!