Karachi, June 03, 2022 (PPI-OT): Petroleum product demand spiked in anticipation of price hike
Petrol price elasticity of demand is 2.5, from what can be deduced from data since Aug-2013. However, the consumers’ propensity to consume less petrol for any increase in petrol prices has changed in the current theme, which is clearly evident from the recent phenomenon of sales trajectory. The two different sets of data, one up to May 28’22 and the other for entire month portrays that the daily run rate of MS and HSD sales spiked c.30% after the recent price hike on May 27’22.
Total POL product sales clocked in at 2.17mnMT during May-2022, growing by 28% YoY while slowing down by 2% MoM primarily due to lower HSD sales. Higher sales from last year are primarily owing to higher auto demand and higher FO sales for power generation. MS sales have climbed 3% MoM in May’22. The petroleum product sales for 11MFY22 are now at 20.62mnMT, higher by 18% from SPLY.
With the Federal Budget announcement on Jun10’22, there is a likelihood that the government will make necessary measures to remove the PDC and reinstate PDL and GST. While this may worsen inflationary outcomes, this move will likely pave way for more conducive deliberations with the IMF and ensure external stability.
POL sales behaviour is temporarily deviating from normal
Petrol price elasticity of demand is 2.5, from what can be deduced from data since Aug-2013. However, the consumers’ propensity to consume less petrol for any increase in petrol prices has changed in the current theme, which is clearly evident from the recent phenomenon of sales trajectory given the subsidy package.
Much stronger evidence is showcased in the recent price hike when the incumbent government abolished subsidy to increase retail fuel prices by Rs30/litre. The two different sets of data, one up to May 28, 2022 and the other for entire month portrays that the daily run rate of MS and HSD sales spiked c.30% in the last few days after the recent price hike on May 27’22 (please refer to the table in sidebar).
We believe that most of this spike was largely backed by the pre-emptive buying pattern of masses to be able to hedge a likely price hike on Jun01’22, which was brushed aside by the authorities owing to rise in int’l prices that translated to higher Price Differential Claims (PDC), till yesterday’s price hike announcement of Rs30/litre. This is visible from the data where last three days witnessed a c.30% higher sales rate for MS and HSD at a 30-40% discounted rate.
Overall growth in POL items mildly affected
Total POL product sales clocked in at 2.17mnMT during May-2022, growing by 28% YoY while slowing down by 2% MoM. Higher sales from last year are primarily owing to higher auto demand and higher FO sales for power generation. MS sales have climbed 3% MoM in May’22. The petroleum product sales for 11MFY22 are now at 20.62mnMT, higher by 18% from SPLY.
PDC pitfalls continue to unveil
With government’s attempt to increase retail fuel prices, PDC component has now reached Rs9/litre for MS and Rs23.05/litre for HSD. As per our estimates, the total outlay from subsidizing MS and HSD now stands at Rs238bn (0.3% of GDP).
With the Federal Budget announcement on Jun10’22, there is a likelihood that the govt. will make necessary measures to remove the PDC and reinstate PDL and GST. While this will likely worsen inflationary outcomes, the move will pave way for more conducive deliberations with the IMF and ensure external stability.