- The price structure for import parity allows for distortion of the refinery margin.
- An increase in the spread of diesel cracks generates abnormal refinery windfalls.
- Cost-plus revision reduces the difference, but the price differences clearly remain.
ISLAMABAD: A major anomaly in Pakistan’s oil pricing mechanism has led to windfalls for local refiners and an ongoing financial burden on consumers, despite the government revising the pricing formula earlier this month.
An in-depth analysis by oil industry sources of official price data for March and April 2026 shows that a wide gap between international diesel prices and crude oil benchmarks allowed refiners to earn extraordinary margins despite the government’s revision of the formula, raising serious questions about the effectiveness and timing of regulatory interventions.
Under Pakistan’s pricing regime, petroleum products are linked to international benchmarks through the Import Parity Price (IPP) mechanism. Refiners receive refinery prices based on these benchmarks along with margins protected by tax, while the Oil and Gas Regulatory Authority (Ogra) sets retail prices after adding taxes and distribution costs.
The sources explain that the refinery’s earnings are primarily driven by the “crack spread” – the difference between the prices of crude oil and the prices of refined products. Although this spread typically follows a stable pattern, it widened sharply in March, creating an unusual price distortion.
Data shows that in March 2026, Platts-based diesel prices averaged $193.96 per barrel versus $108.45 per barrel for Arab Light crude, a ratio of about 180%. Based on historical crack spreads, diesel should have been priced at about $124.72 per gallon. Instead, the profit margin averaged $69.24 per barrel – equivalent to Rs121.51 per liter at the ex-refinery level.
The sources insist the gap peaked on March 30, when diesel prices rose to $250.63 a barrel. barrel compared to $113.69 per barrel for crude oil, pushing the difference to about 220%. With local diesel production recorded at 490,000 tonnes, refiners are estimated to have earned around Rs 60 billion in extra profits during March alone, including around Rs 25 billion in the last week of the month.
Despite early warning signs, it is said that the government did not act quickly. “The anomaly should have been corrected in early March, but instead the impact was passed on to consumers, allowing refiners to make abnormal profits,” a source said.
After mounting criticism, in April the government switched to a price-plus-price formula for a temporary period of three months, replacing the import parity model. Under the revised system, diesel prices are calculated on the basis of Dubai crude plus a fixed crack spread of $52.89, including premium and freight. Although the revised formula proposes a lower spread limit of $11.33, but the regulator prefers to give the highest band to the refiners so that they can earn more money.
However, the sources say fresh data shows that while the revision reduced the price gap, it did not eliminate it. In April, diesel prices averaged $189.27 per barrel versus $115.06 per barrel for Arab Light crude — a difference of about 164%. Based on historical crack spreads, the recommended diesel price was $132.32 per barrel, leaving an excess margin of $56.95 per barrel. barrel, or nearly Rs.100. per litres, sources claim. Under the revised formula, the benchmark diesel price averaged Rs277.10 per litre, lower than Rs332.16 under the previous scheme but still significantly higher than the Rs232.22 per liter level derived from crude oil-based benchmarks. This implies that diesel remained about Rs30 per liter overpriced even after the revision, the sources said.
The sources revealed that the authorities were alerted to the anomaly in early April, but “ignored it until the issue appeared in the media”, prompting the final revision of the formula. Even after the change, concerns remain. “The anomaly has not been fully corrected and refiners are still getting additional margins,” a source said.
Financial results reinforce these concerns, the source said, adding that four listed refiners reported a combined gross profit of Rs72.2 billion for the January-March quarter, compared with Rs27.3 billion in the previous six months. A significant part of this earnings is attributed to increased diesel margins in March. The figures do not include PARCO, which is not publicly listed.
Meanwhile, market sources indicate that another hike in petrol and diesel prices is under consideration, a move that could impose an additional burden on consumers. Critics argue that the fix should have been applied retroactively.
“The revised formula should have come into effect from March 26 and excess margins earned thereafter should have been recovered,” a source said. Instead, they say, the burden continues to fall on consumers. “Instead of recovering excess gains, the government hiked prices by Rs27,” the source added.
The development is likely to trigger re-examination of Pakistan’s petroleum pricing framework, with calls growing to align domestic fuel prices more closely with crude oil benchmarks and prevent windfalls at the expense of the public.
Originally published in The News
