Demand drop builds up huge diesel dead stock

KARACHI: A major flood-led slump in the consumption of high speed diesel (HSD) has led to the cancellation of two cargoes by the state oil company, owing to a built-up of a huge dead stock, which also forced refineries to scale down their operations significantly, The News learnt on Friday.

"There has been a marked decrease in the upliftment of diesel by Oil Marketing Companies (OMCs) because of its lower demand as floods in the country have mostly put brakes on the movement of heavy traffic especially in Balochistan, Sindh, and South Punjab," according to sources in the oil sector.

Industry officials disclosed that diesel stock in the country has grown enormously in the recent weeks.

“Usually the diesel stock is maintained to meet twenty days’ demand; however, the existing inventory is sufficient for seventy days,” sources revealed.

Pakistan State Oil (PSO), the state-owned OMC, which currently holds a total stock of 550,000 tonnes of diesel, had to cancel two import cargoes of 70,000 tonnes each recently because of weak demand, according to a source.

“Even local refineries are operating much below their capacity and their throughput has plunged in recent times as OMCs have refused to lift the diesel for the same reason.”

Another source said PARCO (Pak-Arab Refinery) was operating at 65 percent of its capacity, PRL Pakistan Refinery Limited) is operating at 50-55 percent.

Presently the consumption of diesel is 5,000 tonnes a day, which is much lower than its average daily demand of 15,000 tonnes, which led OMCs to hold their diesel upliftment operations.

Owing to ongoing flooding, heavy traffic on the roads have thinned dramatically. Heavy transport sector is the top consumer of diesel, followed by agriculture.

The oil sector is feeling the pinch as this situation is taking a huge toll on their earnings. The flood-led devastation of crops standing on millions of acres across the country means there will be far less harvesting.

The consumption of diesel rises by 40 percent in the harvesting season.

“As cotton crop has almost completely been destroyed in Sindh and Balochistan and now, apparently, nothing is left on the fields to be harvested, so its impact on diesel consumption would be observed as harvesting season sets in,” an official said.

The Ministry of Finance warned on Thursday that recent floods/torrential rains in July and August, owing to an extended monsoon, have damaged Kharif crops, specifically cotton, which may impact economic outlook through agriculture performance.

“Recent floods driven by exceptionally heavy monsoon rains have reduced the potential output of both main and minor Kharif crops, thereby tempering the positive outlook of the agricultural sector,” said the ministry’s Economic Adviser’s Wing in its Monthly Economic Update & Outlook for August.