PM rejects proposed oil pricing formula amid supply concerns

Prime Minister Shehbaz Sharif has rejected a proposed oil pricing formula following concerns raised by the petroleum industry over potential supply disruptions and financial risks, The Express Tribune reported. 

The proposal, based on an inventory cost mechanism and a four-week Platts average, had been under consideration but faced resistance from industry stakeholders. Officials said the prime minister directed that the matter be handled by the petroleum ministry, cautioning against interference from other quarters.

Industry representatives, including the Oil Companies Advisory Council, said the proposed framework lacked clarity on price determination and could lead to product imbalances, affecting refinery offtake and supply stability. They warned that changes under current market conditions could disrupt procurement and strain financial capacity.

Concerns were also raised about delayed payments of price differential claims and the financial burden of maintaining imports amid rising global prices. Officials noted that refineries and oil marketing companies remain bound by international supply contracts and face strict timelines for retiring letters of credit.

The industry argued that the existing pricing mechanism has remained effective during previous periods of volatility, including the 2022 global energy crisis, and should be maintained to ensure supply continuity.

Separately, Pakistan State Oil warned that the proposed changes could create liquidity constraints, discourage new supply contracts and increase risks of inventory losses. It also flagged concerns over concentrating import responsibilities in a single entity, citing potential inefficiencies and financial exposure.

Officials said the current petroleum supply situation remains sensitive due to disruptions in international markets, including the closure of the Strait of Hormuz, underscoring the need for policy stability.