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Petrol price has received much press, and for good reason too. What has gone rather unnoticed is the demand, which has not stuttered despite a significant price increase. October price increase was the biggest and consumption numbers will take another week to be released. But the 1QFY22 consumption numbers suggest the historic price elasticity of demand may well be changing.

Consider this. High Speed Diesel (HSD) demand is up by 26 percent year-on-year in 1QFY22, despite 12 percent higher retail price. Petrol consumption too has risen by 14 percent in the same period, despite increase of 9 percent in retail price. This is unique because it does not happen often in case of petrol, and almost never in case of HSD.

Petroleum consumers spent 34 percent higher amount of c. Rs620 billion in 1QFY22 on petrol and HSD. Does this suggest an increase in purchasing power, as various spokespersons of the government would want you to believe? It is hard to imagine the consumers paying no heed to the rising food and energy prices, where there is little evidence of meaningful wage increase over previous year. So, what explains undeterred petroleum consumption?

There is no clear answer (and there may never be one). But a trend that held on for over a decade, and started to give away post pandemic, deserves attention. Recall that the infamous “Oil Inquiry Report” had penned an entire chapter on petroleum products’ smuggling. That was met with a lot of raised eyebrows from industry insiders but cannot be brushed aside. The report put the smuggled quantity at c. 5 billion liters, little over one-fourth of the official consumption reported by the OCAC.

Even if the Commission’s findings are overestimating the extent of smuggling and are therefore discounted by half – smuggled content remains a significant chunk of overall consumption. Custom authorities are best placed to answer this, but reduced smuggling must be at play, necessitating incremental oil imports from official channels. The overall demand may still be lower than last year because of price increase, but that may never be known.

It is therefore, important that relevant authorities release information in public domain as regards the extent of smuggling and the seized quantity this year versus previous years. It will always be guesswork, but could be a key variable in terms of decision making, around pricing.

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If petroleum consumption increased as compare to September 2020 this may that "Lookdown" due to "COVID" is lifted. Oct 28, 2021 01:48pm
If petroleum consumption increased as compare to September 2020 this may that "Lookdown" due to "COVID" is lifted.
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Oct 28, 2021 01:49pm
If petroleum consumption increased as compare to September 2020 this may that "Lookdown" due to "COVID" is lifted.
thumb_up Recommended (0)