PSO cancels 400,000T of diesel imports as surplus mounts

KARACHI: Pakistan State Oil (PSO) has cancelled around 400,000 metric tonnes of diesel imports since January, citing a surplus of fuel oil in the country.

Pakistan State Oil (PSO) has cancelled approximately 400,000 MT of diesel imports since January 2024 in view of surplus high speed diesel (HSD) in the country, the company announced on Saturday.

“Regarding the surplus of HSD (high speed diesel) in Pakistan, we must emphasise the severity of the recent decline in diesel sales," the company said in a statement.

"This isn't a mere fluctuation but a critical issue, as the rampant smuggling of diesel not only undercuts legal sales but also inflates our inventory levels."

The company said the situation is causing significant financial strain and sustainability challenges for the entire industry, including refineries and Oil Marketing Companies (OMCs).

PSO has been particularly affected, grappling with unprecedented low sales and consequent operational pressures and it is crucial to understand that the current year’s drop-in diesel sales – approximately 30 percent compared to the past two years – is multifaceted, it added.

“The illegal influx of smuggled diesel is indeed a primary concern. However, other significant factors such as the delay in the agricultural season, unseasonal rains, and a downturn in industrial activity have also played a part in diminishing demand for diesel."

PSO said that compounding these challenges, there has been an unexpected rise in production from local refineries. Whereas the typical production rate hovers around 350,000 metric tonnes monthly, refineries have increased output to roughly 400,000 metric tonnes and are projecting to boost production to 500,000 metric tonnes in the near future.

"This escalation has only served to amplify the existing stockpile issue."

"In a proactive response to this complex scenario, PSO has made strategic decisions to mitigate the impact, including the cancellation of approximately 400,000 metric tonnes of diesel imports since January 2024."

“Our import operations are conducted under a long-standing, government-to-government contract with Kuwait Petroleum Corporation (KPC), predicated on biannual demand projections and local production quotas."

The company said it has been able to negotiate these import reductions by leveraging its longstanding and valuable relationship with KPC, even though such actions extend beyond its contractual obligations.

“We believe the current demand-supply disparity is a short-term disruption, not indicative of a persistent trend, as can be corroborated by historical sales and demand figures”, company added.

In light of these circumstances, PSO asserted that the issue should be addressed with immediate and inclusive corrective measures, proportionate to the scale of risk, and designed to avoid any long-term negative consequences for the stakeholders involved.