Oil sales down 18 percent in Feb due to deliberate supply cuts

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KARACHI: Oil sales posted a hefty 18 percent fall in February 2013 to 1.4 million tonnes as compared to last month on account of drop in Furnace Oil (FO), Motor Spirit (MS) and High Speed Diesel (HSD) demand. This was mainly led by deliberate supply cuts to power sector by major provider i.e Pakistan State Oil (PSO) according to an analyst at Arif Habib Limited (AHL). This massive decline mainly emanated from a gigantic 30 percent month over month (MoM) drop in FO demand (39% contribution), which was further dragged by 12 percent and 6 percent fall in MS and HSD respectively according to a research analyst.

Drop in FO was mainly led by deliberate supply cuts to power sector by major provider PSO, due to circular debt issue. On the other hand as far as growth decline in MS is concerned, a high base-effect was in place during February 2013 consumption numbers as January 2013 saw massive growth in petrol sales amid gas (CNG) shortage going through roof.

A year over year (YoY) comparison for February 2013 mirrors quite an opposite picture, where the sector posted rather 3 percent YoY growth in oil consumption. This was mainly on account of strong demand pullback in MS and HSD by 27 percent YoY and 3 percent YoY respectively, as extreme scarcity of CNG revitalised the demand of conventional fuels, he added.

FO despite lower hydel generation posted a YoY drop of 9 percent in February 2013 to 0.5 million tonnes, as the Oil Manufacturing Companies (OMCs) remained reluctant to increase their exposure to the circular debt-plagued FO market, said the analyst.

As far as oil consumption is concerned for the cumulative 8M FY13, remained flat around 12.6 million tonnes as the massive 18 percent YoY growth achieved in MS volumes was largely diluted by a 3 percent and 1 percent fall in HSD and FO volumes respectively, he added.

The impact of mild percentage drop in these segments has a wider impact on the total sales as later both contribute around 78 percent of the total oil consumption.

PSO’s market share dropped by 4 percentage points in February 2013 as a steep 35 percent fall in FO volumes led PSO’s market share to drop by 5 percentage points to 59 percent in February 2013 compared to 64 percent in January 2013 as FO constitutes around 50 percent of the total volumetric sales of PSO.

Lower gas availability for transportation sector coupled with ban on the installation of CNG kits in new vehicles has led to strong substitution effect for petrol, evident from a massive 14 percent YoY jump in MS sales to 2.1 million tonnes.

This demand momentum to gather pace going forward, as continued substitution effect is expected to take MS demand up 18 percent YoY in FY13 to 3.2million tones, according to analyst.

Increased use of CNG in public transportation across the country has been taking its toll on the HSD demand leading to a 3 percent YoY drop in 8M FY13. This sluggish trend to continue with FY13 demand clocking in at 6.6million tonnes compared to 6.8 million tonnes in FY12, a 3 percent YoY fall, he added.

Despite higher FO demand with lower gas availability, FO consumption remains subdued, as OMCs are reluctant to supply FO on credit to the power sector due to continued liquidity constraints. It is expected FO consumption to remain flat in FY13 to 8.4 million tonnes.


Courtesy: Daily Times

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