ISLAMABAD: The government has approved a new mechanism to review petroleum prices on a weekly basis, aiming to shield the oil industry from rising premiums, insurance costs and freight charges amid volatile global markets.
The decision was taken after the Petroleum Division warned of a potential fuel supply crisis triggered by escalating tensions in the Gulf region that have disrupted energy shipments.
Global oil markets have remained highly unstable following the Middle East conflict that has affected shipping through the strategic Strait of Hormuz — a key maritime route through which nearly 20 percent of the world’s oil supply passes.
Officials say even short-term disruptions in the strait can cause supply delays, sharply higher freight costs and risk premiums, particularly for import-dependent Asian economies with limited short-term sourcing options.
Pakistan remains heavily reliant on petroleum imports from Gulf producers. During the first eight months of the current fiscal year, the country imported 3.6 million metric tons (about 70 percent) of motor spirit (petrol) and one million metric tons (around 21 percent) of high-speed diesel (HSD) against domestic consumption of 5.2 million tons of petrol and 4.8 million tons of HSD.
Authorities warn that prolonged supply disruptions could pose serious risks to the country’s macroeconomic stability as well as transportation and logistics systems.
According to officials, shifting to a weekly pricing mechanism will reduce the time gap between changes in international oil benchmarks and domestic fuel prices. The move is also expected to discourage speculative hoarding and improve alignment between import costs and cash flows.
Under the new formula, the government will calculate fuel prices based on the five-day average (Monday to Friday) of international prices using the Gulf Arab Platts assessment for the respective petroleum products.
The calculation will also incorporate the weighted average premium of cargoes imported by Pakistan State Oil (PSO) that have been discharged or partially discharged and are available for sale in the upcoming week. If no cargo arrives during the period, the most recent weighted average premium will be used.
In addition, the pricing formula will factor in the weighted average of PSO import-related charges and customs duties associated with the cargoes.
Officials said the current PSO-based exchange rate adjustment mechanism will remain in place. However, since PSO’s exchange rate for HSD imports does not fully reflect market conditions, other oil marketing companies (OMCs) importing HSD will use the weighted average exchange rate applied to PSO’s motor spirit imports as the benchmark for calculating exchange losses.
Any exchange rate differential claims by other OMCs will be settled through the Inland Freight Equalisation Margin (IFEM) mechanism.
Under the new arrangement, the Oil and Gas Regulatory Authority (Ogra) will submit indicative petroleum prices every Friday to the relevant government committee for review and approval. After approval, Ogra will recompute the final prices using the latest Platts data and updated PSO import figures.
Any changes in the petroleum levy or climate support levy will be notified by the Petroleum Division on the advice of the Finance Division before Ogra announces the revised prices each week.
The weekly pricing system is expected to improve responsiveness to international market volatility and help stabilise Pakistan’s petroleum supply chain amid ongoing geopolitical tensions.
Story by Zafar Bhutta
