Fall in Pakistan's motor fuel demand amid floods unlikely to impact China's outflows

Devastating floods along with rising fuel prices and shrinking car sales hit Pakistan's motor fuel demand during July-August, but will unlikely impact China's gasoline outflows.

Pakistan's motor gasoline sales over July-August dropped by 20% to 1.23 million mt compared with same period last year, according to data from Oil Companies Advisory Council, a group compiling data of import and export and consumption petroleum products in the country.

Meanwhile, gasoil sales more than halved, falling by 0.94 million mt over July-August against 1.39 million mt the same period last year, the data showed.

Muhammad Saad Ziker, an oil analyst at Karachi based brokerage house, Topline Securities attributed the drop in oil sales to lower transportation activity owing to monsoon season floods which resulted in reduced demand of petroleum products, along with a rise in fuel prices and lower car sales.

Floods have engulfed a majority of Pakistan's southern province Sindh and Balochistan where hundreds of roads have been covered with water impeding the mobilization of trucks and containers, said an analyst.

"I believe close to 30% of the country is flooded, demand is sure to be significantly affected," a Singapore based trader said.

"Gasoline and gasoil consumption is likely to remain on the lower side because of the flood situation," said Tahir Abbas, head of research at Arif Habib in Karachi.

China unaffected amid tight quotas

Despite faltering demand from Pakistan, China, which typically sends a substantial portion of its gasoline outflows to Pakistan, is unlikely to be impacted much by the flood in Pakistan, sources said.

"We have no plan to export gasoline, not to say to Pakistan," said a refinery source from PetroChina.

PetroChina is the main supplier of Chinese gasoline to Pakistan, according to market sources and the oil giant's previous press releases.

China has exported a total of 1.667 million mt of gasoline to Pakistan in the first seven months of the year, making it the second-largest destination for Chinese gasoline cargoes, after a year-on-year increase of 95.5% from 2021, according to the official data from the General Administration of Customs.

China is likely to cut its gasoline exports September to around 200,000 mt, from at least 400,000 mt in August, due mainly to quota shortage and weak refining margins, according to sources.

Economic crisis further pressures demand

Looking ahead, high prices of imported gasoline and gasoil this year, coupled with a weak Pakistani Rupee against the US Dollar, could continue to weigh on consumption levels.

Since May, cumulatively, the retail price of motor gasoline has risen by 57% to Pakistan Rupees 236/liter ($1.05/l) and gasoil price has increased by 71% to Rupees 248/liter ($1.11/l).

The most recent hike in retail prices effective Sept. 1 came after an IMF bailout package for Pakistan in late August, which required the South Asian nation to adhere to scheduled increases of the levy on petrol and diesel, according to media reports.

Flat prices of Platts 92 RON cargoes FOB Singapore averaged $111.62/b over July-August, up from an average of $81.01/b in the year-ago period, S&P Global Commodity Insights' data showed, reflecting the rise in the international prices of the motor fuel.

Similarly, flat prices of Platts 10 ppm sulfur gasoil cargoes FOB Singapore averaged $142.36/b over July-August, almost doubling from an average of $78.19/b over the same period a year earlier, S&P Global data showed.

Additionally, reduced car sales amid higher interest rates are likely to further weigh on Pakistan's motor fuel demand, Abbas said.

In a bid to tame inflation, the State Bank of Pakistan issued a series of hike in its key interest rates to reach 15% over April-July, which slowed down discretionary consumer spending on big-ticket items.