Pakistan's motor fuel demand seen rising further in fiscal 2021-22 after record sales in May

Pakistan's motor fuel demand is expected to remain on an uptrend in fiscal 2021-22 (July-June) as low retail tax rates and economic stimulus measures continue to underpin demand, market sources said.

This comes after domestic gasoline sales hit an all-time high in May at 731,000 mt, up from 637,000 mt a year earlier and 671,000 mt in April, Oil Companies Advisory Council data showed.

Pakistan's oil product imports over July 2020-April 2021 surged 26% year on year to 11.371 million mt, Pakistan Bureau of Statistics data showed.

"Due to rising industrial activity and normalization of consumerism [after COVID-19 lockdowns], we expect petroleum sales to remain on higher ground," Topline Securities analyst Shankar Talreja told S&P Global Platts.

Rising industrial activity was boosting diesel sales, while gasoline sales were strong amid an easing of COVID-19 lockdown measures, said senior investment analyst Shahrukh Saleem at AKD Securities, a Karachi-based brokerage house.

Retail prices low

The main driver of continued growth in motor fuel demand will be low retail tax rates on gasoline and diesel, which have kept prices for oil products in Pakistan low by international standards, market sources said.

Taxes on the retail pump prices of diesel and gasoline were lowered in fiscal 2020-21 to Pakistan Rupees 8.86/liter and Rupees 4.47/liter respectively from Rupees 30/liter for each earlier.

As a result, tax revenue from petroleum product sales fell to Rupees 369 billion over July 2020-March 2021 from the Rupees 460 billion forecast before the tax cut, and the average pump price of motor fuels rose just 8% over June 2020-May 2021, significantly trailing the sharp spike in motor fuel prices elsewhere in Asia over the same period

The price of FOB Singapore 92 RON gasoline, the most liquid gasoline benchmark in Asia, more than doubled from $36.36/b in June 2020 to $74.69/ mt in May 2021, Platts data showed

"The government is expected to continue providing stimulus to different sectors to support growth," Saleem said. "We expect the consumption of petroleum products to increase by 7% during the next fiscal year where retail fuels are expected to take the lead, increasing by 10%," he added.

Lending support

Pakistan's motor fuel demand will also receive support indirectly from expansionary economic policies and higher automobile ownership.

The government has set an economic growth target for fiscal 2021-22 of 3.94%, sharply higher than the contraction of 0.4% reported in fiscal 2020-21.

"The government is expected to continue providing stimulus to different sectors to support growth," Saleem said.

"With the increase in automobile sales and expansion in economic activities, we expect demand for petroleum products to remain high," said Yousuf Saeed, head of research at Darson Securities.

"The sales of petrol were up due to tremendous growth in auto and two wheeler sales, by 54% [to 151,951 units ] and 34% [to 1.587 million units] respectively in the 10 months of the fiscal year from July 2020 to April 2021," said Fahad Rauf, head of sales at Ismail Iqbal Securities in Karachi.