ISLAMABAD: The government is considering a further reduction in the high-speed diesel (HSD) crack spread from $41.8 to $30 per barrel, a move that could lower the retail price of diesel by around Rs18–20 per litre in one go.
Under the proposed mechanism, the HSD crack spread would be linked to the landed cost of crude oil for each refinery. The arrangement would remain in effect until the crisis surrounding the Strait of Hormuz eases, according to a senior Petroleum Division official.
The government had previously reduced the HSD price by Rs32 per litre on August 19 by capping the refinery crack spread at $41.8 per barrel, compared with an international market crack of around $68–70 per barrel. An earlier reduction in April had also capped the refinery crack at $41.5 per barrel, causing an estimated Rs24 billion reduction in refinery profits.
The proposed $30-per-barrel cap is expected to provide consumers with another Rs18–20 per litre relief. However, officials said the mechanism would be structured to ensure that the gross refinery margin (GRM) of individual refineries does not fall into negative territory.
This is particularly important as local refineries are seeking financing from international lenders for around $5 billion in planned modernisation projects.
The continued negative margin on furnace oil, however, remains a major challenge for refineries and continues to weigh on their overall GRMs.
At present, Pakistan’s HSD crack spread is capped at $41.8 per barrel, compared with an international market spread of around $100 per barrel. The country is currently meeting 100% of its HSD requirements through domestic production.
Petrol pricing will remain unchanged for now. The petrol margin is currently around $0–2 per barrel, while approximately 70–75% of petrol is imported, making the existing pricing mechanism more appropriate for the product.
The government’s immediate concern is the high price of diesel, which has significant implications for inflation. Overall inflation has already reached 11.1%, while the price of HSD currently stands at Rs374.31 per litre.
Officials said linking the $30 crack spread to the landed cost of crude would allow refineries to recover additional costs, including freight, insurance, war-risk charges and crude premiums.
For instance, crude purchased at around $90 per barrel could have a landed cost exceeding $101 per barrel by the time it reaches Pakistan after accounting for premiums, insurance and higher freight costs. The same principle would apply to crude imported from the United States by Cnergyico Pakistan Limited.
The proposal was finalised during the seventh meeting of the Petroleum Price Committee on September 2, 2026. It will now be submitted to the prime minister for approval before being placed before the Cabinet Committee on Energy (CCoE).
The committee also reviewed a KPMG-proposed crack-based trigger mechanism as part of the broader transition towards deregulation of petrol and HSD. It reaffirmed import parity and daily pricing as the underlying principles.
For HSD, the committee discussed a $10–30 per barrel crack collar, with these levels serving as vigilance triggers rather than rigid price floors, ceilings or automatic intervention points.
If the seven-day rolling average of the HSD crack breaches either threshold, the Oil and Gas Regulatory Authority (Ogra) would convene a meeting with refineries to assess their GRMs and the broader market situation.
The committee also agreed that petrol would be deregulated by June 2027.
As part of the deregulation process, the committee discussed replacing the existing 20+2 depot-primary-location model for the Inland Freight Equalization Margin (IFEM) with a proposed 9+2 model. The move could generate estimated savings of Rs2.5–3 billion, while its impact on the national fuel price would be limited to around Rs0.10–0.20 per litre.
The committee also examined the issue of windfall gains. Petroleum and Finance Division officials differed over how such gains should be defined, particularly where higher profits are offset by subsequent losses caused by cyclical price movements.
Officials noted that ordinary inventory gains and losses generally reverse over time and should be distinguished from extraordinary, non-reversing gains that could qualify as genuine windfall profits.
Based on financial analysis presented to the committee, compliant oil marketing companies, including Pakistan State Oil (PSO), were not found to have earned abnormal profits during FY2026. The committee also noted that their relatively high effective tax burden already captures a substantial portion of any additional gains.
It therefore concluded that no additional intervention against compliant OMCs was warranted at this stage, while the issue of stock audits has already been referred to Ogra on the prime minister’s direction.
