Oil Sales Reach 25-Month High
Introduction to Petroleum Sales Surge
In November 2024, Pakistan’s petroleum sales reached a milestone, surging to a 25-month high of 1.58 million tonnes, marking a 15% year-on-year (YoY) increase. This surge highlights a recovery in the energy market, driven by significant policy changes such as a crackdown on smuggled Iranian fuel and reductions in fuel prices.
This increase in sales is expected to boost government revenues, particularly through enhanced Petroleum Development Levy (PDL) collections. This increase not only signifies a rebound in domestic fuel consumption but also provides insights into the effect of government policies on market dynamics and revenue generation.
Factors Driving the Surge in Petroleum Sales
Smuggling Crackdown and its Impact
One of the major contributors to the recent rise in petroleum sales is the government’s ongoing crackdown on smuggled Iranian fuel. Historically, smuggled fuel, especially from Iran, has accounted for 15-20% of Pakistan’s domestic fuel market. Smuggling was particularly rampant in provinces such as Sindh, Balochistan, and southern Punjab, areas that have been difficult to regulate due to their proximity to the border.
Tahir Abbas, Head of Research at Arif Habib Limited (AHL), emphasized that stricter enforcement measures targeting smuggling were directly responsible for boosting legitimate sales. Smuggled fuel undermines the government’s fiscal revenue as it avoids taxes such as the PDL and is also excluded from GDP calculations.
The government’s increased efforts to curb smuggling have had a significant positive impact on legitimate fuel consumption, particularly for petrol and diesel.
Impact of Price Reductions on Fuel Consumption
Price Reductions in Petrol and Diesel
Another key factor contributing to the surge in sales is the reduction in fuel prices. Both petrol and diesel prices saw substantial reductions compared to the previous year. Petrol prices dropped by 12%, while the price of High-Speed Diesel (HSD) decreased by 15% YoY. These reductions made petroleum products more affordable, encouraging increased consumption across various sectors, especially agriculture and transportation.
Product-wise Trends in Petroleum Sales
Motor Spirit (MS) Sales Surge
Sales of Motor Spirit (MS), commonly known as petrol, experienced a significant 17% YoY increase, reaching 0.67 million tonnes in November 2024. However, on a month-on-month (MoM) basis, MS sales remained stable. The increase in MS sales can be attributed to a combination of price reductions and the increased availability of legitimate fuel.
High-Speed Diesel (HSD) Sales Growth
The most notable increase in sales was observed in the category of High-Speed Diesel (HSD). Sales of HSD rose by 21% YoY and 15% MoM, reaching 0.79 million tonnes. This surge can be attributed to peak demand in the agricultural sector during the wheat and cotton harvesting seasons, which traditionally requires large quantities of diesel-powered machinery.
Decline in Furnace Oil (FO) Sales
On the other hand, Furnace Oil (FO) sales saw a sharp decline, dropping by 55% YoY to just 0.04 million tonnes. This decline reflects Pakistan’s shift towards alternative sources of power generation, such as coal, hydropower, and nuclear energy, reducing the demand for furnace oil in the power sector.
Company Performance and Market Share
Pakistan State Oil (PSO) Leads the Market
Pakistan State Oil (PSO), the country’s largest oil marketing company, recorded a 12% YoY increase in sales, reaching 0.80 million tonnes in November 2024. PSO’s growth was primarily driven by a 15% increase in MS sales and a 16% increase in HSD sales. However, PSO faced a sharp decline in FO sales, which plummeted by 83%, reducing its market share by 4.3% YoY to 46.2%.
Performance of Other Oil Marketing Companies
Shell Pakistan (SHEL) posted a 6% YoY increase in sales, while Hascol Petroleum (HASCOL) saw a robust 15% YoY growth. However, Attock Petroleum Limited (APL) recorded a 10% YoY decline, resulting in a reduced market share of 8.6%. These trends indicate varying levels of success among the different players in Pakistan’s oil market, with some companies benefiting from increased fuel demand and others struggling due to falling furnace oil sales.
Smuggling: A Persistent Problem
Despite the crackdown on smuggling, the issue remains a significant concern, especially for diesel. Smuggled diesel is priced at Rs60-70 per litre lower than the official market price, making it an attractive option for consumers in the transport sector. However, this continues to undermine government efforts to formalize the fuel market and collect taxes.
Impact on Government Revenues and PDL Collections
Increase in PDL Collections
The surge in petroleum sales has had a positive effect on the government’s fiscal revenue, particularly through the Petroleum Development Levy (PDL). PDL collections reached Rs110 billion in November 2024, marking a 19% YoY increase and a 7% MoM increase. Cumulatively, PDL collections during the first five months of FY2025 reached Rs464 billion, reflecting a 16% YoY growth.
The increase in PDL collections highlights the importance of controlling smuggling and ensuring that all fuel sales are properly registered and taxed. By curbing illicit fuel sales, the government stands to increase its revenue, which is crucial for funding public services and infrastructure projects.
Policy Recommendations for Sustainable Growth
Reducing Smuggling and Fostering Official Imports
Economists and market analysts continue to call for stricter controls on smuggling and the development of official channels for importing Iranian petroleum products. “Official imports are a positive step, provided they adhere to Oil and Gas Regulatory Authority (OGRA) standards,” said Tahir Abbas. By creating legitimate pathways for fuel imports and reducing the role of smuggled products, the government can enhance its revenue collection and support the growth of the domestic petroleum sector.
FAQs
1. What factors contributed to the surge in petroleum sales in Pakistan? The surge in petroleum sales was driven by a crackdown on smuggled Iranian fuel and significant reductions in the prices of petrol and diesel, making them more affordable to consumers.
2. How did the government’s crackdown on smuggling impact legitimate fuel sales? The crackdown on smuggling led to increased sales of legitimate fuel by reducing the availability of smuggled fuel, which had previously accounted for 15-20% of the domestic market.
3. What is the impact of fuel price reductions on consumption? Fuel price reductions, particularly for petrol and diesel, made these products more affordable, resulting in increased consumption, especially in sectors like agriculture and transportation.
4. How did the sales of Furnace Oil (FO) change in November 2024? Furnace Oil (FO) sales dropped sharply by 55% YoY, reflecting a shift in energy generation towards alternative sources such as coal and hydropower.
5. What are the projections for future petroleum sales in Pakistan? With continued government policy support, including the crackdown on smuggling and the reduction in fuel prices, petroleum sales are expected to maintain an upward trend, benefiting both market players and government revenues.
Conclusion
The surge in Pakistan’s petroleum sales in November 2024 signals a positive shift in the energy market, with key factors such as policy interventions, price reductions, and improved enforcement against smuggling contributing to the growth. While challenges remain, particularly in addressing smuggling, these trends highlight the importance of government policies in stabilizing the fuel market and ensuring sustainable growth in the sector.
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