One may assume that the public outcry over the skyrocketing fuel prices would have impaired sales, but that does not seem to be the case. It is actually Furnace Oil (FO) that has borne a severe brunt, according to the performance of oil marketing companies across July and August.
Despite the economic slump, soaring prices, lower margins, and currency depreciation, sales of High-Speed Diesel (HSD) and Motor Spirit (MS) are on the rise, offering a glimmer of hope amidst the downturn.
Digesting the numbers
In July 2023, sales of FO plunged by nearly 60%, while retail products like MS and HSD registered annual growth. This trend persisted in August, with Oil Marketing Company (OMC) volumes witnessing an 8% annual fall, led by a staggering 64% decline in FO. On the contrary, HSD and MS incurred an increase of 11% and 13% annually, respectively.
“The industry did grow significantly on a month-on-month basis,” says Omar Shafqaat, Chief Operating Officer at Taj Gasoline. He explains that this is not due to increased economic or transport activity, but instead because of low activity on account of Eid and Ashura in July. “For Eid, it takes 6-7 days for commercial activity to pick up and diesel demand to return to its average. For Ashura as well, the two days are at about 30% of routine daily demand for both diesel and petrol.”
The monthly growth in volumes for August was also positive at 4%, with MS and HSD rising by 2% and 11%, respectively. FO continued its monthly fall as well, with an 18% decline. Overall, the second month of FY24 OMC sales volumes were down by 7% annually to 2.8 million tons as compared to 3 million tons in the second month of FY23, with HSD up by 11% annually, MS up by 8%, and FO down by a staggering 61% annually.
Shafqaat points out that “more relevant is the year-on-year number for the industry,” which shows a decline. “It dropped significantly after the price increase in June 2022. Hence even with a relatively lower base, it has declined further.”
He also adds that “we see a significant impact on account of price increase as well as an influx of smuggled diesel which is now readily available in all markets up to Lahore.”
The pre-buying split
There is speculation that the increase in volumes in recent months has been due to advance buying of products in anticipation of further price hikes, which was indeed witnessed on September 01, 2023 again as the price of petrol increased from an average price for June of Rs 253 to Rs 311 on September 01, 2023. The HSD average price of Rs 262 for June 2023 is up to Rs 305.36 for September 2023 so far.
“Pre-buying is a fact,” Shafqaat elucidates, “it happens with every price increase, whilst the reverse happens with every price decrease.”
The validity of pre-buying is however vehemently disputed. Sources conveyed to Profit that such a phenomenon is currently not possible because refineries are operating below capacity, so whatever product they produce is for immediate use. Furthermore, given that petroleum imports are planned in advance and amidst the current forex crunch, priority is being given to refiners which makes the chances of this even more improbable according to them.
Looking ahead, Profit has already covered how last week’s rally in global crude markets is set to trigger another round of upward price revisions if it continues or if there is not substantial appreciation by the Pakistani Rupee.
If these revisions do come to pass, September’s sales data might not paint a rosy picture even on a month-on-month basis.