Back to rising oil imports!

Earlier this week, the column talked about the petroleum sales (primarily furnace oil, diesel and petrol). A good chunk of what is sold by the oil marketign companies, and hence consumed in the market is made up of imports.

Historically, the country’s import bill has been dominated by oil imports that include crude oil as well as petroleum products,a nd these imports have played a big role in widening the current account deifcit. The rising trend in petroleum imports in the counry took a breather as international crude oil prices waned. However, as per State Bank’s latest State of Economy Report (i.e. for 1HFY17), oil payments – which had been declining for eight consecutive quarters and somewhat nullifying the impact of higher non-oil imports – reversed trend in 2QFY17, and tacked onto an already elevated non-oil import bill for the period.

Overall, there has been an increase in import bill, and higher purchases of fuel and POL products has been quoted as one of the reasons for rising imports. The numbers from SBP’s 1HFY17 report show that retail fuels like HSD and motor spirit have recorded significant growth coming from strong transport sector activity, and a hefty increase in imports of buses and heavy commercial vehicles as CPEC activity picks up. Also the quantum of car sales also indicates the increased demand for petrol, while the government continues to clip CNG supply. Where petrol sales and imports have continued to grow, the growth has been slower than FY16 numbers due to increased prices relatively.

Also, the rise in petrol imports has come from impact of the policy shift towards high quality petrol (92 RON) as local refineries struggle to upgrade their existing set-ups to comply with new product standards.

OCAC date for 9MFY17 continues to show similar trend where petrol imports; another trend seen from OCAC numbers is the increase in furnace oil import, which comes from the rising demand form the power sector as still many net capacities are yet to come online. This can also be verified from SBP data.

Oil imports are up; we might not see any appeasement on this front as oil prices are also on a rebound; and with the surge in oil prices following the supply cut agreement between OPEC and non-OPEC members in December last year, the import bill is likely to widen further, and hence a wider trade deficit. As per SBP’s numbers, petroleum imports have already grown by 11.5 percent year-on-year during 1HFY17.