Petroleum sales ebb and flow with economic growth that drives and restricts consumption. Economic slowdown in the country since 2019 and COVID-19 outbreak in 2020 has shown how consumption has faded in comparison to previous years. However, seeing how oil sales have performed in the two last months, there are now voices that petroleum sales by the oil marketing companies might have bottomed out.
The factors that are driving such speculations include some measures in places like curb on border movement as well as improving situation of COVID-19 in the country and the resulting resurgence in economic activity.
FY21 has started off better for the oil marketing firms. Not only did the July 2020 oil sales by the OMCs see a 3 percent growth on a month-on-month basis, the year-on-year growth was over 8 percent. Product wise, a key contributor to July volumes was the furnace oil; while the fuel remained 19 percent year-on-year lower, it doubled on a month-on-month basis primarily driven by lifting the ban on FO imports as well as higher FO based power generation including additional supply to K- Electric. Furnace oil volumes in July 2020 stood at 12-month monthly high. Going forward, FO volumes might see some stability before seeing a slowdown as demand for power generation tapers off in the winter months.
Of the retail fuels, last month sales numbers were being considered an anomaly – especially the motor gasoline sales (petrol sales) that stood at all time high amid COVID-19 implications. However, July 2020 motor gasoline volumes continue to remain elevated and highest even barring June volumes. Part of this is attributed to curbs on the border and the restrictions for the flow of smuggled petrol. And part of it has to do with increased inter-city travelling by road as highlighted by a Topline Securities research note. Petrol volumes are expected to continue growing now that COVID-19 has become manageable and activities have resumed but would be restricted by increasing prices.
High speed diesel volumes also remained on the higher side in June and July 2020. July volumes were up by 24 percent year-on-year due to the seasonal growth as well as strict border controls to control the smuggling in of grey product. HSD volumes are likely to see a seasonal dip in August 2020.