Up until FY17, petroleum consumption in the country was up and growing; oil sales by the oil marketing companies showed increasing volumes amid rising demand by the power sector, infrastructure and transport sector, and a general rise in economic activity as well as a better pricing environment. This all slowed down in FY18 where not only international crude oil prices had started rebounding that increased product prices and hence partially affected demand, industry dynamics also started tipping downwards.
Six months into FY19 now, the petroleum consumption has lost its vigour. Factors like reduced furnace oil consumption by the power sector with the coming in of imported but relatively cheaper RLNG and efforts (effective and ineffective) to curtail furnace oil have curtailed growth. Growth in High margin retail fuels – diesel and petrol - that had become the favourites of the oil companies has started to taper off or consolidate as CPEC projects slowed down, infrastructure and development activity started waning, and unabated automobile sales including cars, tractors, trucks and motorcycles softened while fuel prices continued to rise.
Punjab being the largest province in terms of population remains the largest consumer of the petroleum products. Province wise data from OCAC shows that the province accounts for 60 percent of the total consumption of petroleum products that include furnace oil, high speed diesel, motor spirit, JP-1, Kerosene, etc. Product wise, its share petrol consumption has increased from around 60 percent in FY05 to over 66 percent in FY18. The province has similar shares in HSD and FO consumption; 59 percent in total HSD and 50 percent in total furnace oil in FY18 that stood around 56 percent in FY17 before the furnace oil curtailment began.
A couple of highlights of the provincial demand data shows that petrol consumption has been steadily in all provinces despite the recently consolidating growth in volumes, while furnace oil has slithered in all provinces in FY18 and 1HFY19. While diesel consumption, which is commonly consumed by the agriculture and commercial transport sector has also trotted down in by Punjab and KPK in FY18, Sindh and Balochistan consumption continues to show growth.
The down cycle in petroleum product is anticipated to linger in FY19 due to lower demand and higher prices. At the same time, the sector headwinds like exposure of the OMCs to PKR/USD, heightened competition and changing fuel mix will do their part in keeping volumetric growth in check.
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