Pakistan’s oil demand set to bounce back after COVID pain

KARACHI: Oil consumption in Pakistan is expected to rise after registering double-digit fall during the last fiscal year amid shutdown associated with coronavirus outbreak, pricing agency S&P Global Platts reported.

S&P Global Platts, in its oil market review, said Pakistan’s oil consumption declined by as much as 11 percent in the fiscal year of 2019/20 as the coronavirus pandemic kept people indoors and industrial activity slowed to a trickle for a substantial part of the year, but analysts see demand bouncing back in fiscal 2020-21.

“We expect petroleum demand to increase due to gradual normalization of economic activity following the lockdown,” said Muhammad Mohsin Ahsan, managing director of Optimus Capital Management. “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.”

Hamza Kamal, senior analyst at AKD Securities Ltd., shared a similar view, saying both gasoline and diesel demand will 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,” he said. “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.”

Oil consumption in fiscal 2019/20 stood at 16.36 million metric tons compared with 18.31 million mt in the previous fiscal year, data from the Oil Companies Advisory Council showed. Pakistan’s gasoline consumption in 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 percent to 6.546 million mt, and furnace oil sales fell 36 percent to 1.926 million mt.

“We expect consumption of diesel and motor gasoline to increase by 10 percent this fiscal year,” said Tahir Abbas, director of research at 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 percent in 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, which 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 2019/20 rose 3.7 percent 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 its import bill fell by 25 percent to $4.74 billion. On the feedstock segment, crude oil imports declined by 25 percent to 6.813 million mt during 2019/20 against…