Pakistan’s oil demand feels COVID-19 pain, set to bounce back

Highlights

Country posts first negative economic growth in 68 years

Oil consumption in fiscal 2019-20 down by double-digits

Product imports set to remain high amid lower runs

Karachi —
Pakistan’s oil consumption declined by as much as 11% in the fiscal year 2019-20 (July-June) as COVID-19 kept people indoors while industrial activity slowed to a trickle for a substantial part of the year, but analysts are hopeful that demand will bounce back in fiscal 2020-21.

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But despite the sharp fall in domestic oil consumption in a year that witnessed negative economic growth for the first time in 68 years, the country’s oil product imports posted positive growth, while imports of crude oil slowed sharply in the same period.

“We expect petroleum demand to increase due to gradual normalization of economic activity following the lockdown. Demand will also find support from better farm economics, lower interest rates and the 2.1% real GDP growth expected for the 2020-21 financial year,” said Muhammad Mohsin Ahsan, Managing Director of Optimus Capital Management.

Hamza Kamal, senior analyst at AKD Securities Ltd., shared a similar view, saying both gasoline and diesel demand would witness positive growth in the current fiscal year, although expectations of a recovery in oil prices amid anticipated lower economic growth may limit the growth rate in oil demand.

“Prices of motor gasoline and diesel are bound to increase. This, coupled with high taxes in the form of petroleum levy and high prices, will make a case for influx of products from across the border once COVID-19-related restrictions on borders ease,” he added

Oil consumption in fiscal 2019-20 stood at 16.36 million mt compared with 18.31 million mt in the previous fiscal year, data from the Oil Companies Advisory Council showed.

Pakistan’s gasoline consumption in fiscal 2019-20 remained largely flat at 7.316 million mt compared with 7.351 million mt in the preceding year. Diesel consumption in the year dropped 9% to 6.546 million mt and furnace oil sales fell 36% to 1.926 million mt.

“We expect consumption of diesel and motor gasoline to increase by 10% this fiscal year”, said Tahir Abbas, director of research at Karachi-based brokerage house Arif Habib Ltd. “The continuous increase in vehicle population, as well as rising exports and trade activity will improve demand for petroleum products post COVID-19”.

Negative growth takes its toll

Pakistan’s economy contracted by 0.4% in fiscal 2019-20, according to the country’s Ministry of Finance. The countrywide lockdown imposed to fight the spread of coronavirus resulted in closure of several thousand factories across the country which also led to negative growth in the manufacturing sector. It also took a toll on the demand for fuels from the transport sector.

On the trade side, petroleum product imports in fiscal 2019-20 rose 3.7% to 10.808 million mt, from 10.422 million mt in the prior year, data from the Pakistan Bureau of Statistics showed. Falling international prices helped Pakistan take a breather as the import bill fell by 25% to $4.74 billion.

On the feedstock segment, crude oil imports declined by 25% to 6.813 million mt during fiscal 2019-20 as against imports of 9.029 million mt in the preceding year. In dollar terms, the crude imports fell by 40% to $2.722 billion, data from the bureau showed.

S&P Global Platts physical sour crude benchmark Cash Dubai averaged $51.35/b during fiscal 2019-20, 25% lower than the $68.41/b average in fiscal 2018-19. The benchmark crude price averaged $43.32/b to date in July.

Pakistan’s domestic refineries typically run at rates above 100%, but low crude imports amid weak demand prompted its 155,000 b/d Byco refinery, 100,000 b/d Parco refinery, and 50,000 b/d Pakistan refinery to run below capacity in recent months.

As a result, oil marketing companies are likely to import more spot barrels of motor fuels in the near future as the recovery in domestic demand amid low refinery run rates threatens to draw down the country’s already limited supplies, according to trade sources.