HSD demand declines in February, surplus stock piles up

A fuel station worker fills petrol in a vehicle in Karachi on October 01, 2022. — PPI

KARACHI: The demand for high-speed diesel (HSD) declined sharply in February, pushing overall stock levels to 35 days — well above the legally required 20-day stock.

Industry sources told The News that February is typically a low-demand month for HSD. However, the Oil & Gas Regulatory Authority (Ogra) overestimated its demand and permitted imports despite sufficient local production.

According to industry insiders, the lower demand was largely due to a slowdown in HSD lifting amid expectations of a significant price reduction in the next petroleum price review. “The data from the first seven days of February indicates a substantial decline in HSD prices in the domestic market,” they said.

Figures from the oil sector show that diesel demand has dropped by around 40 per cent so far this month. Daily consumption has fallen to between 7,000 and 10,000 tonnes, compared to 17,000 to 18,000 tonnes per day just a few weeks ago.

Industry sources revealed that refineries are now offering oil marketing companies (OMCs) forward pricing incentives to encourage the lifting of HSD stocks.

The sector is experiencing an HSD surplus due to both local production and imports. Sources stated that local production was sufficient to meet demand, but Ogra’s inflated projections led to excessive stockpiling.

The formal HSD market has also been impacted by the sale of smuggled Iranian diesel, which has significantly hurt sales. However, recent anti-smuggling efforts have helped curb its availability in the local market.

During the first half of the current financial year, the country’s refineries produced 2.3 million tonnes of HSD, while imports totalled 1.1 million tonnes. The total HSD sales for the first six months of the fiscal year reached 3.4 million tonnes, reflecting a 10 per cent year-on-year increase.

Industry experts noted that diesel prices have risen in the last three reviews, with the most recent increase pushing HSD prices up by Rs7 per litre. This prompted dealers to lift large stocks in anticipation of further price hikes. However, with an expected price reduction in the next review, dealers are now exercising caution in purchasing additional stock.