Pakistan refinery margins slump to $11/barrel, below five‑year average
Gross refining margins fell sharply in September to about $11 per barrel, driven by higher crude premiums linked to regional security tensions, putting pressure on refinery earnings.
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Negative · Do not buy
Refining margins falling hurts Oil & Gas sector; avoid related stocks.
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Desk call: Do not buy · Negatively affected
- Oil & GasNegatively affected
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Sectors: Oil & Gas — Negative · Do not buy. PSX tickers: PRL, ATRL. Refining margins falling hurts Oil & Gas sector; avoid related stocks.
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Open on ProPakistani## Margin decline in September
Pakistan's oil‑refining sector saw gross refining margins (GRMs) drop to roughly $11 per barrel in September, far below the five‑year average of $13.5 and the $33 per barrel recorded in August.
## Drivers of the squeeze
Sherman Securities attributes the fall to a $12‑$15 per barrel rise in supplier crude premiums for September and October deliveries, a cost increase tied to security concerns stemming from the US‑Iran conflict.
## Impact on diesel pricing
Under the current pricing formula, refineries receive a $41.89 per barrel spread over Dubai crude, assuming a negative $1.5 premium and $8 freight. With actual premiums now at $12‑$15, the landed cost of Arab Light crude (priced at $95) rises to about $115 per barrel. High‑speed diesel (HSD) sells near $148 per barrel, leaving an effective spread of roughly $33 per barrel, well under the formula’s target.
## Furnace oil and other products
Furnace oil margins also deteriorated. While crude costs surged, high‑sulphur furnace oil stayed around $76 per barrel, widening the negative spread to about $39 per barrel in September from $15 in August. Petrol (motor‑spirit) crack spreads fell to $14 per barrel from $27 in August. Current product spreads are: - High‑sulphur furnace oil: -$39.4 per barrel - HSD: $32.5 per barrel - Motor spirit: $14.2 per barrel - Jet fuel: $30.7 per barrel Crude prices, including premiums, have risen about 27% since late August.
## Suggested policy changes
Sherman Securities recommends that the government revise the diesel pricing mechanism, either by incorporating the actual $12‑$15 premium into the formula or by removing customs duty on HSD.
## Potential losses and consumer benefit
If margins stay weak, import‑dependent refineries could incur losses in the December quarter and face challenges in executing upgrade agreements. The brokerage estimates that domestic refineries are absorbing $30‑$35 per barrel of the international HSD price rise, effectively passing a consumer benefit of roughly Rs 30‑32 billion per month.
## Outlook
The continued pressure on margins underscores heightened cost risks for Pakistan’s refining companies and may affect their profitability and dividend outlook for the remainder of the fiscal year.