High prices reduce oil demand

KARACHI:

Demand for petroleum products fell 7% to 1.24 million tonnes in December 2023, driven by higher petrol and diesel prices and a significant reduction in consumption of expensive furnace oil at power plants.

Citing data from the Oil Companies Advisory Council (OCAC), local research houses said demand for petroleum products was 1.34 million tonnes in the same month last year.

Cumulatively, in the first half (July-December) of the current fiscal year, consumption of petroleum products fell by 15% to 7.69 million tons against 9.03 million tons in the corresponding period last year.

Speaking to The Express Tribune, Akseer Research Director Mohammad Awais Ashraf said that Pakistan has seen a decline in consumer demand for petrol and diesel mainly due to the increase in their prices in the last one year.

He said that on average the price of petrol rose 24% in a year to Rs276 per liter compared to Rs216 per liter a year ago. Similarly, diesel price rose by 20.5% to Rs276 per liter as against Rs229 per liter a year ago.

Additionally, a slowdown in industrial output including power generation explained why demand for petroleum products – mainly furnace oil and diesel – shrank in December and the first half of FY24. The director said the rise in prices came after the International Monetary Fund (IMF) asked the government under its loan program to withdraw consumer subsidy on petroleum products and continue to adjust oil prices in line with the global trend .

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Moreover, the depreciation of the rupee by almost 20% in 2023 also pushed energy prices higher as Pakistan met over 70% of its energy demand through imports. However, he pointed out that prices were currently significantly lower compared to the record high seen in the recent past. Falling international oil prices and a return to stability in the rupee-dollar exchange rate helped pass on the benefits to end consumers.

He pointed out that the demand for furnace oil dropped significantly after the government decided to phase out the expensive option for electricity generation. The arrival of a new and cheaper nuclear power plant and local coal-fired power plants helped to get rid of furnace oil.

The head of the research house predicted that oil consumption would stabilize around current levels in view of the expected wheat harvest this season (October 2023 to March 2024) and due to the recovery of the cotton crop.

“Petroleum demand will remain 14-15% lower in the current fiscal as a whole compared to FY23.” However, prices were expected to remain near and around current levels in the second half (January-June) of FY24, he said.

Published in The Express Tribune, January 3^rd2024.

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