According to industry officials, Pakistan did not import high-speed diesel (HSD) in July due to a drop in domestic demand caused by an economic downturn and smuggling from Iran.
The transportation and agriculture sectors consume over 70% of the country’s diesel.
However, both sectors have been severely impacted by the economic downturn and the high cost of Pakistani diesel in comparison to cheaper Iranian fuel.
During the previous fiscal year’s July, the country imported 162,000 tonnes of HSD.
“The economic slowdown has severely hampered transportation sector operations, while agricultural consumption has also been low,” an industry official stated.
He also stated that daily diesel usage through the legal channel has dropped to 15,000 tonnes from 22,000 tonnes previously.
According to sources, Pakistan State Oil (PSO), the country’s largest oil importer, postponed its planned HSD imports for July since local refineries had sufficient stockpiles to fulfill the low demand.
“If HSD had been imported, refineries would have had to shut down because their diesel production would not have been consumed by the local transportation sector,” according to another source.
According to the source, PSO was unlikely to import HSD in August or September, as demand remained weak and the price differential with Iranian diesel worsened.
According to officials, diesel smuggling from Iran met the majority of the country’s demand for HSD in the month under review, as the high price of Pakistani diesel drove the transport sector to cheaper Iranian fuel.
On August 15, the government raised the price of HSD by 7% to Rs293.40 a litre, but Iranian diesel is supplied in border areas for around Rs200 per litre.
“The consumption of diesel through the legal channel has decreased by one-third,” according to an industry official.
“Refineries are already dealing with non-lifting of furnace oil, and power plants are hesitant to use fuel oil for power generation.”
As a result, boiler oil reserves in the country have accumulated, and refineries have had to export some of the supply to keep operations going.” According to the official, if diesel was imported in July, refineries would have to shut down because their output would not have been absorbed by the local transportation industry.
The swelling stockpiles of furnace oil, which is used by power plants to generate electricity, have also posed issues to Pakistan’s oil sector. Because of the high cost of furnace oil, power plants have been unwilling to use it, prompting refineries to export part of their excess stockpiles.
Officials stated they did not expect any change in diesel usage in the next few days, as the diesel price increase would encourage even more Iranian diesel consumption in the country.
“There is little chance that PSO will import HSD in August or the following month, given the current situation of diesel consumption through the legal channel,” an official stated.
