Pakistan's FY 2022-23 oil consumption declines amid high prices, industrial slowdown

Pakistan's consumption of petroleum products fell by a sharp 27% year on year in the fiscal year ended June 30 on the back of a sluggish industrial cycle, illegal imports and surging global oil prices, with the trend unlikely to reverse anytime soon, according to official data, analysts and industry sources.

Consumption fell to 16.61 million mt in 2022/23 (July-June) from 22.6 million mt in the previous year, showed data collected from oil companies and Oil Companies Advisory Council.

"Pakistan's oil consumption has experienced a downtrend since October last year. This decline can be attributed to sluggish industrial activity, reduced local transport fuel consumption, weak auto sales and high product prices. These factors are expected to continue impacting oil consumption in Pakistan throughout the latter half of 2023," S&P Global Commodity Insights said in a research note.

Ali Nawaz, chief executive officer of Chase Securities, said the decline in sales was mainly due to a slowdown in domestic demand as retail fuel prices had increased sharply last year.

"Petroleum product prices rose sharply on account of the devaluation of the [Pakistan] rupee and imposition of taxes on diesel and petrol, commonly known as petroleum development levy," he added.

Petrol and diesel prices in the past 13 months rose by an average of 45% to Pakistan Rupee 262 and Rupee 253/liter, respectively. The rise in prices came as the government, in an effort to improve tax collections and convince the International Monetary Fund to disburse more loans, imposed a petroleum tax of Rupee 50/liter on petrol and diesel.

Turbulent economy

Zeeshan Azhar, research analyst at Foundation Securities, added that the sales of petrol and diesel suffered a setback because of interest rates rising to as high as 22% last year. In addition, a peak inflation rate of 38% in May reduced economic activity, pulling down overall industrial output.

The Pakistan economy over the last 16 years had witnessed two dismal years -- 0.3% growth in the fiscal year ended June 30 and a negative 0.9% growth in the pandemic-hit year of 2019-20. In the remaining years, growth averaged 3.95%, according to data from the Economic Survey.

Sales of diesel declined by 28% to 6.37 million mt in the past fiscal year, from 8.87 million mt in the preceding year, OCAC data showed, falling to the lowest level in a decade.

Tahir Abbas, head of research at Arif Habib Ltd., a Karachi-based brokerage house, said in addition to a sharp appreciation in prices and smugglingof the commodity from Iran, factories also reduced their operations as a scarcity of foreign exchange reduced their ability to import raw materials.

"The refining sector in Pakistan has faced credit issues as refiners import crude oil based on their credit lines in rupees, which are insufficient due to high oil import costs and local currency depreciation caused by dwindling forex reserves. Pakistan's oil sector has struggled to open letters of credit from commercial banks to import cargoes of crude oil and petroleum products," S&P Global said in the research note.

Pakistan foreign exchange reserves held by the State Bank, the central bank, fell to $4.07 billion as of June 23 from $9.814 billion on July 1, 2022, the central bank data said.

"Reserves declined sharply because of debt payments and drying up of inflows from financial institutions and bilateral countries as they failed to get a nod from the IMF on the country's economic indicators," an analyst said on the scenario over the past fiscal year.

A delay in getting a loan from the IMF resulted in a sharp decline in the value of Pakistan's currency against the US dollar.

Auto sector sees slowdown

Petrol sales witnessed a slide of 17% to 7.42 million mt in the year ended June 30, compared with 8.95 million mt in the preceding year, the data said.

Petrol sales were down because of falling auto sales during the period as devaluation not only lifted petroleum product prices but also car prices, an analyst said. Car prices in the past 18 months have shot up by about 120% to 150%, depending upon variants, he said.

Car sales in the first 11 months of the past fiscal year were about 92,554 units, down 56% from 210,633 units over the same period in the previous year, according to data from Pakistan Automobiles Manufacturers Association.