Pakistan plans to secure adequate supply of middle distillates to supplement its improving economy but expectations of tight Chinese motor fuel exports for the second half of 2021 may prompt the South Asian nation to raise imports from other main supply sources in the Middle East, according to oil product trading sources and market analysts based in Karachi.
Pakistan’s domestic oil consumption in fiscal year 2021 (July 2020-June 2021) totaled 19.45 million mt, an increase of 19% from the 16.36 million mt consumed over the same period the previous year as an improvement in domestic economic activity led to a strong uptick in gasoil and gasoline demand, data by the country’s Oil Companies Advisory Council showed.
The uptick in gasoil demand was evidenced by the 18% year-on-year jump in diesel sales over FY 2021 to 7.699 million mt, in contrast with 6.546 million mt consumed in FY 2020, the data showed.
Easing COVID-19 restrictions during the last fiscal year increased industrial activity, boosting overall demand for petroleum products, which helped the economy to grow 3.94% after two years, Shahrukh Saleem, research analyst at Karachi-based ALD Securities, said.
Moreover, diesel sales also increased on the back of a stimulus package in the farming sector, with subsidies given to the sector to aid in the increase in agricultural output, another industry source said.
In addition to gasoil demand, Pakistan also recorded a sharp year-on-year growth in gasoline consumption — the result of a recovering automobile sector.
According to data from the OCAC, Pakistan’s petrol sales recorded an increase of 13% to 8.237 million mt in FY 2020.
“Lower interest rates enticed consumers to borrow funds to buy cars on installments,” Tahir Abbas, head of research at Arif Habib Securities, said.
In FY 2021, domestic car sales rose to 181,397 units, from 111,632 units a year earlier, data from Pakistan’s Automotive Assemblers Association showed.
Middle distillate supply sources
The improvement in Pakistan’s gasoil and gasoline demand helped to absorb barrels from the regional market, with traders saying that this may have a knock-on effect of shoring up prices should this upward trend be sustained.
Pakistan imported around 800,000 mt of gasoline from China in H1 2021, almost double the 437,000 mt received in H2 2020, latest data from China’s General Administration of Customs showed.
This is especially so given that regional supply balances are tightening, with several sources noting that deep cuts to oil product export volumes from North Asian producers, in particular China, have resulted in a tight outlook for the rest of 2021.
China’s middle distillate exports are expected to fall over the coming months as Beijing looks to limit oil product export permits in an effort to cut emissions to meet the country’s carbon zero target, while reserving enough barrels for domestic consumers.
Beijing is likely to allocate about 7.5 million-9.5 million mt of quotas for exporting gasoline, gasoil and jet fuel in the final round of allocation for this year, S&P Global Platts reported earlier. If the allocation hits 9.5 million mt, the total allocation would work out to 39 million mt for 2021, about 14.7% lower from the actual export level of 45.75 million mt in 2020, Platts calculations showed.
Reflecting the tight supply outlook, the physical FOB Singapore 10 ppm sulfur gasoil crack spread against front-month cash Dubai averaged $6.96/b over July, sharply higher than the $5.17/b average in January.
Pakistan would rely heavily on Middle Eastern supply as one of its top suppliers China may struggle to provide a steady stream of gasoline cargoes, said trading and distribution managers at Pak-Arab Refinery and analysts at Darson Securities Ltd., a Karachi-based brokerage house.
Latest data from the Fujairah Oil Industry Zone showed that oil product inventory at the UAE’s Port of Fujairah stood at 20.95 million barrels on July 26, down 3.7% on the week and the lowest since May 24 following a doubling in diesel exports, Platts reported on July 28.
Fujairah’s oil product exports reached 1.75 million barrels in the week of July 19, more than double a week earlier, according to commodity data company Kpler. Most of the shipments in recent weeks have been diesel/gasoil, to destinations such as Kenya, Tanzania, Pakistan, and Argentina.
Pakistan’s gasoil imports moved contractually to a Euro 5 standard for the first time this year and it purchases gasoil cargoes from state-owned Kuwait National Petroleum Corp. under a term contract, Platts previously reported.
Source: Platts