Despite a 21% and 19% surge in petrol and diesel prices respectively in March, Pakistan witnessed a counterintuitive 13% and 8% month-on-month increase in sales volumes, driven by panic buying amid the US-Iran conflict and a broader uptick in vehicle ownership. Total oil sales rose 19% year-on-year to 1.44 million tonnes, signaling resilient economic activity despite geopolitical tensions and inflationary pressures.
The apparent disconnect between rising fuel costs and increased demand warrants a closer examination. This isn’t simply a case of inelastic demand. it’s a complex interplay of geopolitical anxiety, shifting consumption patterns, and underlying economic trends. The surge in furnace oil (FO) sales, particularly, suggests a strategic, if temporary, shift in energy sourcing as consumers and industries react to price volatility. But the long-term implications for Pakistan’s energy mix and its reliance on imported fuels are significant.
The Bottom Line
- Inventory Buildup: The panic buying phenomenon created a temporary inventory gain for Oil Marketing Companies (OMCs), but this effect is unlikely to sustain as prices remain elevated.
- Vehicle Sales as a Driver: The 43% year-on-year increase in car sales and 31% rise in two/three-wheeler sales are fundamentally altering demand dynamics, creating a baseline for higher fuel consumption.
- PDL Reliance: The government’s heavy reliance on Petroleum Development Levy (PDL) revenue – already at 77% of its FY26 target – creates a fiscal vulnerability as demand potentially softens in April.
The Geopolitical Premium and Consumer Behavior
The escalation of tensions between the US and Iran is undeniably a key factor. As of April 3, 2026, Brent crude oil is trading at $92.75 per barrel, a 7.2% increase since the beginning of March, directly attributable to the heightened risk of supply disruptions in the Middle East. Reuters reports that geopolitical risk premiums are now baked into oil prices, and Here’s being felt acutely in import-dependent economies like Pakistan. However, simply attributing the sales increase to fear is an oversimplification. The data reveals a more nuanced picture.
Decoding the Furnace Oil Anomaly
Here is the math. The 98% month-on-month jump in FO sales to 88,000 tonnes is particularly noteworthy. While this could be a temporary response to petrol and diesel price hikes, it also points to potential issues with fuel availability and the relative cost-effectiveness of FO for certain industrial applications. FO is typically used in power generation and some industrial processes. A significant shift towards FO could indicate constraints in the supply of refined petroleum products or a deliberate strategy to utilize cheaper, albeit more polluting, energy sources. However, the 23% year-on-year *decline* in FO sales over the first nine months of FY26 (392,000 tonnes vs. 509,000 tonnes) suggests this is a short-term tactical adjustment, not a structural change.
But the balance sheet tells a different story. Pakistan’s power sector is heavily reliant on imported FO, and a surge in FO demand puts additional strain on the country’s foreign exchange reserves. This is particularly concerning given Pakistan’s ongoing economic challenges and its reliance on IMF bailouts. The International Monetary Fund has repeatedly emphasized the need for Pakistan to diversify its energy sources and reduce its dependence on imported fuels.
The Automotive Sector’s Role and Macroeconomic Context
The robust growth in vehicle sales – a 43% year-on-year increase in car sales and a 31% rise in two/three-wheeler sales – is a significant driver of petrol demand. This growth is fueled by a combination of factors, including increased disposable incomes (albeit modest), easier access to financing, and a growing middle class. However, this growth also presents challenges. Pakistan’s infrastructure is struggling to preserve pace with the increasing number of vehicles on the road, leading to congestion and pollution. The country’s refining capacity is limited, forcing it to import a significant portion of its petroleum products.
The broader macroeconomic picture is also important. Myesha Sohail of Topline Securities correctly points to strengthening economic activity and reduced inflation as contributing factors. Pakistan’s inflation rate has fallen to 24.5% in March 2026, down from a peak of 38% in April 2025. Trading Economics data shows this decline is largely due to tighter monetary policy and a stabilization of the Pakistani Rupee. However, inflation remains high, and the purchasing power of consumers is still constrained.
The Government’s Fiscal Tightrope
The government’s reliance on the Petroleum Development Levy (PDL) is a critical factor to watch. With Rs1.13 trillion collected out of a Rs1.47 trillion target for FY26, the PDL is a significant source of revenue. However, as fuel prices rise, demand may decline, potentially jeopardizing the government’s revenue projections. The rising Price Differential Claim (PDC) – Rs96/litre for petrol and Rs204/litre for diesel – adds to the government’s fiscal burden. This creates a difficult balancing act: raising fuel prices to generate revenue risks dampening demand and fueling inflation, while lowering prices could strain the government’s finances.
“The sustainability of these oil sales figures hinges on the government’s ability to manage the PDL and PDC effectively. A sharp decline in demand could force them to revisit their revenue targets and potentially seek alternative sources of funding.” – Dr. Aisha Khan, Senior Economist, Institute of Policy Studies, Islamabad.
Here’s a comparative snapshot of key oil sales data:
| Product | March 2026 (Tonnes) | YoY Change (%) | MoM Change (%) | 9MFY26 (Tonnes) | YoY Change (%) |
|---|---|---|---|---|---|
| Petrol | 670,000 | 16% | 8% | 5,796,000 | 5% |
| Diesel | 590,000 | 21% | 13% | 5,349,000 | 7% |
| Furnace Oil | 88,000 | 62% | 98% | 392,000 | -23% |
| Total Oil | 1,440,000 | 19% | 13% | 12,400,000 | 5% |
Looking Ahead: April 2026 and Beyond
The outlook for April 2026 is cautiously pessimistic. As Myesha Sohail predicts, elevated petroleum prices are likely to dampen demand. The government may be forced to further increase fuel prices to offset the rising PDC, potentially triggering a negative feedback loop. The key will be to monitor global oil prices, manage the PDL effectively, and address the underlying structural issues in Pakistan’s energy sector. The long-term solution lies in diversifying energy sources, investing in renewable energy, and improving energy efficiency. The current situation is a stark reminder of Pakistan’s vulnerability to external shocks and the need for sustainable economic policies.
The performance of **Pakistan State Oil (PSX: PSO)** will be a key indicator. Any significant decline in sales volume will directly impact PSO’s revenue and profitability. Investors will be closely watching PSO’s quarterly earnings report for signs of weakening demand. Similarly, the performance of other OMCs, such as **Attock Petroleum (PSX: APCL)** and **Hascol Petroleum (PSX: HASCOL)**, will provide further insights into the health of the petroleum sector.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
