Petroleum pricing anomaly yields windfall gains for refineries, consumers bear cost: report

A pricing anomaly in Pakistan’s petroleum mechanism has resulted in significant gains for local refineries while passing on higher costs to consumers, despite a recent revision in the pricing formula, The News reported, citing industry sources.

Analysis of official data for March and April 2026 shows that a sharp divergence between international diesel prices and crude oil benchmarks widened refinery margins under the Import Parity Pricing (IPP) system, raising concerns over regulatory effectiveness.

Under the existing framework, petroleum product prices are linked to international benchmarks, with refineries receiving ex-refinery prices based on these levels, while the Oil and Gas Regulatory Authority (Ogra) sets retail prices after adding taxes and distribution costs.

The anomaly was driven by an increase in the crack spread — the gap between crude oil prices and refined product prices. In March 2026, diesel prices averaged $193.96 per barrel compared to $108.45 per barrel for Arab Light crude, creating a ratio of about 180%. Based on historical trends, diesel should have been priced near $124.72 per barrel, leaving an excess margin of $69.24 per barrel, or Rs121.51 per litre at the ex-refinery level.

The disparity peaked on March 30, when diesel reached $250.63 per barrel against $113.69 per barrel for crude, pushing the differential to around 220%. With domestic diesel production at 490,000 metric tonnes, refineries are estimated to have earned around Rs60 billion in additional profits during March, including Rs25 billion in the final week.

Sources said authorities did not intervene at the onset of the anomaly, allowing the impact to be passed on to consumers. The government later introduced a temporary cost-plus pricing formula in April for three months, replacing the import parity model.

Under the revised system, diesel prices are linked to Dubai crude with a fixed crack spread of $52.89, including premiums and freight. However, data indicates that the pricing gap persists. In April, diesel averaged $189.27 per barrel against $115.06 per barrel for crude, a differential of about 164%.

Based on historical benchmarks, diesel should have been priced around $132.32 per barrel, leaving an excess margin of $56.95 per barrel, or nearly Rs100 per litre. The revised formula resulted in an average price of Rs277.10 per litre, compared to Rs332.16 under the previous regime, but still above the Rs232.22 per litre derived from crude benchmarks, indicating an overpricing of around Rs30 per litre.

Financial data shows four listed refineries reported combined gross profits of Rs72.2 billion in the January–March quarter, compared to Rs27.3 billion in the preceding six months, with elevated diesel margins contributing to the increase.

Sources said authorities were alerted to the issue in early April but acted after it gained attention, and concerns remain that additional margins continue to be allowed under the revised framework.

Market participants indicated that further increases in petrol and diesel prices are under consideration, which could add to consumer costs. Critics said the revised formula should have been applied earlier and excess gains recovered, but the burden has remained on consumers.