LAHORE: Following a slump in domestic demand due to an economic slowdown and smuggling from Iran, Pakistan did not import high-speed diesel (HSD) in July.
About 70% of the country’s diesel is used by the transport and agriculture sectors.
However, both sectors have been hit hard by the economic crisis and the high price of Pakistani diesel compared to cheaper Iranian fuel.
During July of the last financial year, the country imported 162,000 tonnes of HSD.
“The economic slowdown has badly hampered the operations of the transport sector, while consumption in the agriculture sector has also been low,” said an industry official.
He added that the daily diesel consumption from the legal channel had fallen to 15,000 tonnes from 22,000 tonnes in the past.
Sources said Pakistan State Oil (PSO) — the country’s largest oil importer — deferred its planned HSD imports for July as local refineries had enough stocks to meet the low demand.
“If HSD had been imported, then refineries would have had to cease operations as their production of diesel would not have been consumed by the local transport sector,” said another source.
The source said that PSO was unlikely to import HSD in August or September either, as the demand outlook remained bleak and the price gap with Iranian diesel widened.
Officials said that diesel smuggling from Iran mostly met the demand for HSD in the country in the month under review, as the high price of Pakistani diesel pushed the transport sector to cheap Iranian diesel.
The government increased the price of HSD by 7 percent to Rs293.40 per liter on August 15, while Iranian diesel is sold at around Rs200 per liter in the border areas.
The consumption of diesel from the legal channel has fallen by one-third,” said an industry official.
“Refineries are already facing the issue of non-lifting of furnace oil, as power plants are also reluctant to consume fuel oil for power generation.
This has resulted in the piling up of furnace oil stocks in the country, and refineries had to export some of the quantity to keep operations running.” The official said that refineries would have to cease operations if diesel was imported in July, as their production would not have been consumed by the local transport sector.
Pakistan’s oil sector has also been facing challenges from the rising stockpiles of furnace oil, which is used by power plants for electricity generation. The power plants have been reluctant to use furnace oil due to its high cost, forcing refineries to export some of their surplus stocks.
Officials said they did not see any improvement in the consumption of diesel in the coming days, as the diesel price hike would further promote the consumption of Iranian diesel in the country.
“There is little chance that PSO would import HSD in August or the next month, due to the prevailing situation of diesel consumption from the legal channel,” said an official.
