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Pakistan's July-Sep oil sales jump 24% on industry revival, fuel switching


Oil product sales volume at highest since Q4 of fiscal year 2017-18

Lofty LNG prices boost domestic fuel oil consumption

Pakistan's oil products consumption during the first quarter of fiscal year 2021-22 (July-June) grew 24% from the year-ago period to 5.863 million mt on a combination of a rebound in industrial and transportation activity as well as rising demand for fuel oil following a rise in LNG prices, analysts said.

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Q1 sales for the current fiscal year are the highest recorded since the fourth quarter ending June 30, 2018, when oil products sales were registered at 6.4 million mt, said Umair Naseer, a senior analyst at Karachi-based brokerage house Topline Securities.

Data from the Oil Companies Advisory Council showed that Pakistan's fuel oil consumption, also known as furnace oil, grew by 38% over July-September 2021 to 1.272 million mt. Diesel sales, meanwhile, increased by 27% to 2.098 million mt, while petrol sales were up 14% over the same period to 2.349 million mt.

Total oil product sales received a boost from higher demand for fuel oil, with analysts noting that higher prices of LNG resulted in more demand swinging over to fuel oil for power generation.

Rising purchases

S&P Global Platts' observations showed that Pakistan State Oil stepped up procurement of high sulfur fuel oil and low sulfur fuel oil over this period, importing on average about four cargoes per month in Q3, compared with the country's usual purchase of one cargo per month during the summer months.

The rise in fuel oil procurement came even as the Pakistan LNG cancelled a tender seeking eight LNG cargoes over the quarter, with the rise in LNG prices making fuel oil a more financially viable alternative, traders in the Middle East said.

"Pakistan's petroleum products sales [have] increased owing to an uptick in economic activities and increased government reliance on furnace-based power generation," Abdullah Umer, a research analyst at Ismail Iqbal Securities said.

Meanwhile, gasoline benefited from firm vehicle sales during the July-September 2021 period, with latest data released in September by the Pakistan Automotive Manufacturers Association showing that car sales over July-August 2021 rose a sharp 93% over the year-ago period to 38,658 units.

Saad Ali, director research at InterMarket Securities said that September was the first month with almost complete opening of business entities across Pakistan, with no lockdowns in place.

"The reopening of schools and the markets (more working days) overrode the negative effect of high retail prices of diesel and petrol," Ali said.

Market outlook

Moving forward, market sources said Pakistan's demand for oil products is expected to move higher, especially from the motor vehicle segment, due to converging prices between CNG and gasoline.

Analysts said they expect gasoline sales to remain robust on the back of a narrowing price gap between CNG and gasoline due to the imposition of a 5% customs duty and 17% sales tax on imported LNG, said Abdullah Umer, a research analyst at Ismail Iqbal Securities.

The bullish sentiment was reflected in firmer demand for gasoline in September, with market sources saying that spot gasoline requirements had emerged during the month from state-owned Pakistan State Oil Company. The company was heard seeking up to 55,000 mt of 92 RON gasoline for delivery over Oct. 13-26, but results of the tender could not be ascertained.

"We've been seeing spot tenders in Pakistan this month ... there is a pull in the Middle East," said a Singapore-based trader in September.

Diesel sales are also expected to be firm due to seasonal demand from the agriculture sector, with buyers stocking up on fuel in anticipation of price hikes later in the year.

"A revival in the economy and a surge in demand from power companies accelerated the pace of fuel consumption in the country as reliance [on oil] has increased following a rise in LNG prices,", said Saeed Khalid, head of research at Shajar Capital Securities.