Pakistan's Oil & Gas Sector: Navigating a Decade-High Demand Slump
November 2025 data reveals concerning 10% year-on-year decline in petroleum consumption, signaling structural challenges in the nation's energy landscape
Pakistan's oil and gas marketing sector faces its most significant headwinds in years. As petroleum sales plummeted 10% year-on-year to 1.42 million tons in November 2025, the nation confronts a complex web of economic, agricultural, and policy-driven challenges that threaten energy security and government revenue projections.
A Sharp Reversal in Consumption Trends
November 2025 marked a significant turning point for Pakistan's petroleum sector. Total Oil Marketing Company (OMC) sales of 1.42 million tons represented a sharp 10% decline compared to the same month in the previous year—a stark contrast to November 2024's 25-month peak in consumption volumes. The downturn stems from a "double whammy" of headwinds: elevated demand in the previous year created a challenging comparison base, while lower prices last year further suppressed current-year demand elasticity.
More concerning, however, is the month-on-month contraction. Even when compared to October 2025, total sales slipped 5% to 1.42 million tons from 1.50 million tons, signaling a downward momentum that defies seasonal recovery expectations as the winter heating season typically boosts energy demand.
Divergent Pressures Across Fuel Types
Motor Gasoline (MS): Price-Driven Contraction
- MS offtake fell 9% YoY to 0.61 million tons, primarily due to 7% year-on-year higher retail prices, dampening consumer demand for this essential transportation fuel.
- Month-on-month, MS volumes declined a sharper 7%, indicating accelerating weakness in automotive fuel consumption.
- Within the five-month fiscal period, MS volumes reached 3.24 million tons—a modest 2% growth but driven almost entirely by lower 2024 comparables.
Motor gasoline represents the largest consumption segment but faces structural headwinds. Price elasticity among Pakistani consumers remains high; the documented 7% retail price increase directly suppressed demand. This suggests limited room for further price adjustments without triggering demand destruction, placing pressure on OMC margins.
High-Speed Diesel: Agricultural Economics in Crisis
HSD sales tumbled 13% year-on-year to 0.68 million tons, reflecting stressed farm economics. Diesel is the lifeblood of Pakistan's agricultural sector—powering irrigation pumps, tractors, and transport. The sharp contraction signals deteriorating conditions in the rural economy, likely exacerbated by erratic rainfall, input cost inflation, and global commodity price volatility.
The agricultural narrative is critical. HSD volumes declined 4% month-on-month in November, weighed down by weak farm economics and reduced cross-border trade activity. Pakistan's agricultural sector, which contributes roughly 18-20% of GDP and employs nearly 40% of the workforce, serves as the demand bellwether for diesel consumption. Weakness here signals broader rural distress.
| Product | Nov-25 | Nov-24 | YoY Change | MoM Change |
|---|---|---|---|---|
| Motor Gasoline | 0.61 Mn Tons | 0.67 Mn Tons | -9% | -7% |
| High-Speed Diesel | 0.68 Mn Tons | 0.79 Mn Tons | -13% | -4% |
| Fuel Oil | 0.03 Mn Tons | 0.04 Mn Tons | -32% | -9% |
| Total Industry | 1.42 Mn Tons | 1.58 Mn Tons | -10% | -5% |
Fuel Oil (FO) saw the steepest decline: a devastating 32% year-on-year plunge to just 0.03 million tons. This collapse reflects a structural shift in Pakistan's power generation landscape. The government's emphasis on renewable energy and coal-based power plants, coupled with PKR 77/litre Petroleum Development Levy (PDL) introduced in the FY26 budget, has effectively priced FO out of the power generation market. As winter arrived, reduced reliance on FO-based generation—typically a summer phenomenon during peak cooling demand—drove a further 9% month-on-month contraction.
Competitive Landscape Shifts: PSO Loses Ground
While absolute demand contracted, the competitive dynamics among OMCs underwent significant realignment. Pakistan State Oil (PSO), historically dominant, saw its market share substantially shrink by 3.4 percentage points to 42.8% in the five-month FY26 period, compared to 46.2% in the same period last year. This marks the most significant market share erosion for the state-owned incumbent in recent memory.
The Rise of GO and WAFI
The beneficiaries of PSO's decline are notable: Gas and Oil Pakistan Ltd (GO) surged dramatically, with market share expanding 3.1 percentage points to 12.4% in 5MFY26, up from 9.3% in the prior year. Similarly, WAFI (Shell) improved to 8.3% market share (+1.1% YoY). These gains reflect both operational efficiency and potentially aggressive market penetration strategies by private competitors.
PSO's sales specifically declined 19% year-on-year to 0.64 million tons in November 2025, with both MS and HSD offtake falling 20% and 23% respectively. Meanwhile, APL's market share eroded 0.4% to 8.2%, while HASCOL maintained steady positioning at 3.0%. The market consolidation favors nimbler private operators over the bureaucratic state entity, signaling potential structural shifts in distribution advantages or pricing power.
Petroleum Levy Shortfall: A Fiscal Headache
The 10% sales contraction has immediate fiscal consequences. Petroleum Levy (PL) collection in the five-month FY26 period stands at approximately PKR 630.8 billion—putting the government on pace to significantly undershoot its revised annual target. The Federal Government established a revised PL target of PKR 1,468 billion for FY26 (approximately PKR 112 billion monthly average), implying monthly collections must accelerate dramatically in the coming months to meet the full-year goal.
At the current trajectory, the government faces a significant fiscal gap. Collection through November is tracking below the necessary pace, meaning either consumption must recover sharply or the government will face difficult choices regarding the levy structure or alternative revenue sources. This is particularly critical given Pakistan's ongoing IMF program and limited fiscal flexibility.
Root Causes: High Base, High Prices, Weak Fundamentals
The 10% decline cannot be attributed to a single factor. Rather, a constellation of headwinds has aligned to depress demand:
Primary Drivers of Weakness
- High Comparative Base: November 2024 marked a 25-month peak in OMC volumes, creating an extremely challenging year-on-year comparison.
- Price Sensitivity: The 7% YoY increase in MS retail prices and pressure on HSD margins directly suppressed demand among price-elastic consumers.
- Agricultural Distress: Weakened farm economics, evident from HSD contraction, suggest rural income stress and reduced agricultural investment.
- Cross-Border Trade Weakness: Reduced cross-border activity contributed to HSD contraction, indicating softer regional trade dynamics.
- Power Generation Shift: Structural transition away from FO-based power generation, accelerated by PDL and renewable energy expansion, eliminated a major demand category.
- Winter Seasonality Headwind: Typically, winter heating demand should support FO and HSD consumption—the fact that seasonal tailwinds are insufficient to offset year-round headwinds underscores the severity of the downturn.
Implications: What This Means for Stakeholders
For the Government: The petroleum levy shortfall threatens fiscal targets at a time when Pakistan can ill-afford revenue slippage. The IMF program's conditionality around fiscal discipline may necessitate difficult trade-offs between protecting levy collection and managing consumer inflation. Additionally, energy security concerns emerge if demand weakness reflects genuine consumption reduction (economically negative) rather than substitution (potentially neutral).
For OMCs: The environment is increasingly competitive and margin-compressed. PSO's significant market share loss signals that larger, state-owned incumbents are vulnerable to more agile private competitors. Smaller operators must capitalize on distribution gaps, while larger players must defend through operational excellence and pricing discipline. Fuel Oil producers face the gravest challenge—with a 32% demand collapse, producers and retailers of FO face structural headwinds requiring rapid portfolio diversification.
For the Broader Economy: The HSD contraction is the most economically significant signal. If driven primarily by agricultural distress, it reflects income stress among a significant portion of Pakistan's population. This could amplify inflation pressures (as food output struggles) and depress demand for related goods and services. Conversely, if the decline reflects genuine energy efficiency improvements or vehicle fleet shifts toward more efficient models, it would be a positive structural development.
For Energy Policy: The data validates the government's strategic shift toward renewable energy and away from FO-based power generation. However, the overall sales decline also suggests that energy demand growth—essential for economic development—is stalling. Policymakers must balance climate objectives against growth imperatives.
Conclusion: A Sector at an Inflection Point
Pakistan's oil and gas marketing sector has reached a critical juncture. The 10% year-on-year sales decline in November 2025 is not merely a cyclical downturn—it reflects structural shifts in power generation, agricultural stress, and price elasticity that will shape the sector's trajectory for years to come. The competitive environment is intensifying, with private operators gaining ground at PSO's expense. Most significantly, the petroleum levy shortfall threatens government revenue projections and complicates fiscal policy management.
The path forward requires careful calibration. If consumption weakness persists, the government may need to rebase fiscal targets or explore alternative revenue mechanisms. OMCs must invest in operational efficiency and customer retention to navigate the competitive squeeze. Agricultural recovery should be a national priority—not only for food security but also to stabilize energy demand and support rural incomes.
As Pakistan navigates its energy transition and macroeconomic challenges, the petroleum sector's resilience will serve as a key indicator of broader economic health. The coming months will reveal whether November's decline represents a cyclical trough or the beginning of a prolonged contraction.