KARACHI, March 21: The State Bank has predicted that imports of petroleum products are expected to decline somewhat in the second half of 2004-05. Not only are international oil prices expected to decline in spring, Pakistan’s oil requirements are also likely to be reduced by the lower dependence on thermal electricity following improved water prospects (and attendant rise in hydro-electricity generation). Giving a brief review on petroleum group, the SBP in its second quarterly report 2004-05 said the petroleum group import recorded a 38 per cent rise in the first half of 2004-05, reaching $1.9 billion during this period.
As a matter of fact, the petroleum group import pattern is likely to undergo some changes because of the commencement of commercial operations by a new small petroleum refinery, Bosicor Pakistan Limited, since July 2004. Bosicor captured 30.3 per cent share in the total crude imports increase in the second half.
This will cause a substitution of import demand for the petroleum products with crude petroleum.
In the first half of 2004-05 also, there was a visible increase in the crude petroleum imports. However, the expected fall in the petroleum product imports was not evident due to severe water shortage in the country that led to higher thermal power generation and an attendant rise in fuel oil imports.
Furthermore, the SBP said that on account of higher economic activity, energy demand is also growing and to fulfil this demand refineries are operating at higher capacity utilization rates causing demand for crude petroleum to rise. Capacity utilization rate for Pak Arab Refinery Limited (Parco), country’s largest oil refinery, rose to 83 per cent in first half of 2004-05, from 71 per cent in the same period last fiscal year.
The report says rise in high-speed diesel demand was due to a bumper cotton crop that needed a large harvesting operation also caused a rise in domestic petroleum products demand. However, this demand was fulfilled through increased domestic production.
Diesel sales/consumption in the first half of 2004-05 remained high at 3.966 million tons as compared to 3.6 million tons in the same period last year. Similarly, fuel oil demand in July-December 2004-05 stood at 2.4 million tons as compared to 1.64 million tons in the corresponding period the previous fiscal year.
In a sharp contrast to SBP’s outlook on petroleum sector, Abdul Rasheed of Jehangir Siddiqui Research forecasts that the government is expected to continue with its existing policy of passing on oil price rise to the consumers. This is because that any subsidy to oil consumers has to be met through bank borrowing that will hike interest rates and hence negatively affect economic growth.
He said that global oil prices were expected to remain above $50 a barrel in the short-term, despite Opec’s decision to raise oil production by 500,000 barrel a day.
At the moment, refining capacity constraint, fears of war with Iran and increasing global oil demand prove that prices are not expected to come down in the near future, he said.