Demand for petroleum products rose 25% to 1.26 million tonnes in October 2023 compared to the previous month, fueled by lower prices and a gradual improvement in economic activities.
The rise in demand for petroleum products is a sign of recovery in Pakistan’s gross domestic product (GDP), which reflects the central bank’s forecast of moderate economic growth of 2-3% in the current financial year. Last year, the economy grew a paltry 0.3%.
Large-scale manufacturing (LSM) and the agriculture sector, which are the top consumers of petroleum products, remained on an upward trend as their production levels increased. This also supports the central bank’s narrative that the economy is showing early signs of recovery.
The recovery was particularly seen in the sales of the automobile, cement and oil industries in recent months.
Topline Research analyst Myesha Sohail, in a comment, said the average petrol price for October 2023 fell to Rs 303 per liter compared to Rs 318 in September 2023.
Similarly, the average price of diesel fell to Rs 311 per liter in October from Rs 321 in September.
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Analysis of energy sales data shows demand for spirits (gasoline) rose 12% to 0.58 million tonnes in October compared to 0.52 million tonnes in September. Motorcyclists are the first consumers of the fuel, followed by car drivers.
Sales of high-speed diesel (HSD) rose 42% to 0.56 million tonnes in the month under review compared to 0.39 million tonnes in the previous month, indicating a gradual recovery in economic activities as the fuel was mainly used by industry and agriculture Consumers.
Market talk suggests that the significant increase in diesel demand has come in part from curbs on fuel smuggling from neighboring Iran.
On the other hand, demand for furnace oil fell 37% to 0.05 million tonnes in October following the recent addition of low-cost local (Thar) coal-based power plants.
Furnace oil is one of the most expensive fuels for power generation. The government is reducing reliance on oil-based power plants at a time when low-cost options are readily available.
“For the 24th year, we expect a possible recovery in non-furnace OMCs (oil marketing companies) sales, which are estimated to increase by up to 5%. This is mainly attributed to the recovery in economic activity where interest rates are expected to come down in the second half of FY24, coupled with favorable agricultural crops,” said Sohail.
Demand for petroleum products, however, was 24% lower in October compared to the same month last year. Cumulatively it fell by 18% year-on-year in the first four months (July-October) of the current financial year.
Arif Habib Limited analyst Muhammad Iqbal Jawaid, in his report, said total oil sales fell 24% to 1.26 million tonnes in October year-on-year.
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“This decline can be attributed to a number of factors, including rising oil prices, a general economic slowdown and a decline in furnace oil consumption due to reliance on new coal-fired power plants,” he said.
Specifically, sales of alcoholic beverages fell 15% year-on-year in October. Similarly, HSD sales saw a significant decline of 21%. Furnace oil was the most affected as its sales plummeted by 74%.
Overall, in the first quarter of the current fiscal year, sales of petroleum products fell by 18% year-on-year to 5.08 million tons compared to 6.15 million tons in the same period last year.
Product data showed a decline across categories with sales of motor spirit, HSD and furnace oil coming in at 2.43 million tonnes, 2 million tonnes and 0.40 million tonnes, respectively.
Published in The Express Tribune, November 3rd2023.
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