POL demand continues to slide

KARACHI – Overall demand for petroleum product continues to slide, as consumption contracted by two percent annually during the eighth month of the current fiscal year. Subdued black oil sales marred overall volumes, led by a 3.5 percent annual decline in furnace oil (FO) sales.
On the flip side, expansion in motor gasoline (MS) sales swelled by 20 percent since last year and carried overall white oil volumes during the period. Lackluster performance was attributable to depressed economic activity, a hike in petroleum product price (13 -24 percent), curtailed electricity demand during winter, availability of cheaper alternatives whilst summer floods caused extensive damage to infrastructure and swept away supply routes and tamed demand during 1QFY11.
A total of 12.79 million tonnes of petroleum products were consumed during 8MFY11, lower by two percent annually. In absolute terms, consumption of high speed diesel (HSD) constricted sharply by 311,000 tonnes owing to sharp rise in price (19 percent since last year) and persistently poor economic activity. Surprisingly, demand for FO remained dull during the period, firstly owing to reduced demand due to floods in 1QFY11 and lower capacity utilisation by GENCOs and IPPs during the winter.
However MS demand was sustained and expanded by 20 percent since the same time last year, owing to gas load shedding for CNG stations and a curb on smuggled oil. Circular debt continues to eat away at Pakistan State Oil (PSO) margins as market share slipped to 64 percent in contrast with 70.1 percent in the preceding year while other Oil Marketing Companies (OMC) such as Shell and Attock Petroleum Limited (APL) catch up quickly to 15.2 percent and 6.5 percent during 8MFY11, respectively.
PSO lost market share in HSD, JP and FO segments. Shell on the contrary has gained market share in FO segment securing FSA with NPL and NCPL, boasting overall market share. APL’s MS share grew by 37 percent since last year due to robust network expansion, while FO volumes also grew by an impressive 56 percent and bolstering overall market share.
Capacity utilisation of local refineries remained depressed (below 70 percent) necessitating 40 percent of the consumption being met through imports. Listless local demand kept the overall import volumes in check but value in terms of dollars expanded by 20 percent as international product prices rose sharply, said Salman Vidhani at HMFS.
The import of petroleum products during 8MFY11 stood at $5.11 billion against $4.25 billion during the same period last year. Import of crude oil declined by nine percent despite sharp rise in international oil prices as local refineries operated far below capacity owing to circular debt and uncertainty over the price mechanism.
Product prices have risen sharply from 13 percent to 24 percent annually, despite forgoing petroleum levy as international crude oil price has risen sharply. FO prices average Rs 53,500 per tonne, up 13 percent since last year which may add to the cost in terms of circular debt and power generation. Local petroleum product prices are expected increase by 8-10 percent for April 2011, even if the government does not tinker with petroleum levy.
Overall annual volumes for FY11 are likely to remain lackluster, standing at 20 million tonnes, a two percent annual decline.