Equity Analysis /
Pakistan

Pakistan OMCs: Dec’22 - Pressure on petroleum product demand continues

  • Slowdown in sales of petroleum products continues, as taxation and economic slowdown weaken demand.

  • Several refineries shutdown during the month due to lack of FO demand leading to a pile up in inventory.

  • Imposition of GST on HSD and MS along with PKR devaluation can further fuel inflation in coming months.

Intermarket Securities
3 January 2023

Sales of petroleum products have reduced further by 14% MoM. In December, elevated inflation and overall slowdown of economic activity continue to dampen demand. HSD volumes took the major hit and fell 22% MoM in December followed by FO (-10% MoM) and MS (-8% MoM). During the month, the government increased petroleum development levy (PDL) to PKR30/ltr on HSD, whereas, PDL on MS remained at PKR50/ltr. 

  • Refineries continue to struggle with slower demand and pile up of FO inventory, this is the reason most of the refineries ceased their operations during the month. The expectation that FO demand may revive during winters due to shortage of LNG has not panned out as yet because FO volumes are down 24% YoY in 1HFY23. However, recently some respite came as PARCO exported 50,000 tonnes of Furnace oil to Singapore in order to reduce FO stocks. If this continues sector wide then it can alleviate inventory issues.

  • Despite the decline in MS prices by PKR10/ltr, volumes reduced by 8% MoM in December to 0.62mn MT. Higher inflation and economic slowdown reduced demand. Market share in MS remained stable for PSO and HASCOL while APL and SHEL were able to increase their MS market shares by 0.8% and 1% respectively.

  • Falling international prices created room for the government to increase PDL on HSD to PKR30/ltr in December (up PKR12.59/ltr on MoM basis). Higher prices coupled with weak demand hampered volumes to 0.52mn MT in December (-22% MoM). Except for PSO, all other oil marketing companies saw an increase in HSD market share by around 1 % but PSO’s market share witnessed a decline from 63.2% in November to 57.3%.

Recent respite in international oil prices has given the government room to extend relief, but this assistance may be short lived due to pressure from the IMF to increase PDL to PKR50/ltr and imposition of GST on MS and HSD. This can potentially fuel inflation further and weaken future demand too, in our view. However, upward revision of dealer margins, further reduction in international oil prices and energy reforms (circular debt) are key triggers for the industry.