ISLAMABAD: Pakistan’s oil marketing companies (OMCs) and refineries are facing mounting financial and operational pressure from repeated changes to the high-speed diesel (HSD) pricing mechanism, with industry stakeholders warning that another downward intervention could make diesel imports and crude procurement commercially unviable, reduce refinery utilisation and eventually disrupt petroleum supplies.
Industry officials said the problem already exists under the current capped HSD pricing arrangement, which does not adequately reflect the actual cost of imported crude and finished diesel cargoes. Any further reduction in the pricing benchmark could widen the gap between actual procurement costs and recoverable domestic prices, placing both OMCs and refineries under greater financial stress.
The Oil Companies Advisory Council (OCAC), in a September 8 letter to Energy Minister (Petroleum Division) Ali Pervaiz Malik, expressed serious concern over repeated changes to the HSD pricing mechanism in recent months, the latest of which was introduced on August 20.
The council said reports were circulating that the government was considering another intervention by reducing the HSD crack ceiling from $41.89 per barrel to $30 per barrel. Such a move could result in a further reduction of approximately Rs18–20 per litre in the domestic HSD price.
Import Costs Far Above Pricing Formula
For OMCs, one of the major concerns is the widening gap between the import cost recognised under the pricing formula and the actual prices at which physical diesel cargoes are available in the international market.
According to the OCAC, the existing HSD pricing formula incorporates an Aramco premium of minus $2 per barrel for October, while physical cargoes are currently being offered and booked at premiums ranging from $15 to $20 per barrel.
The council said this disparity was already creating significant difficulties in booking October diesel cargoes.
Industry officials warned that OMCs could be forced to procure diesel at substantially higher prices than those recoverable through the domestic pricing mechanism. If importers cannot recover the actual landed cost of cargoes, their ability and commercial incentive to arrange adequate supplies could be seriously undermined.
Refinery Throughput Under Pressure
Refineries face a similar challenge in procuring crude. Import-dependent refiners say the existing HSD price cap does not fully cover sourcing costs as crude suppliers demand significantly higher premiums.
Frequent changes to the pricing formula are further increasing uncertainty, making it difficult for refiners to determine whether crude cargoes booked weeks in advance can ultimately be recovered through domestic product sales.
Industry officials warned that this uncertainty could directly affect refinery utilisation. If imported crude becomes uneconomical, refiners may be forced to reduce crude procurement and lower throughput rather than increase production to meet seasonal demand.
The OCAC has also cautioned that an abrupt reduction in the HSD price could make high-premium cargoes uneconomical and compel refineries to cut production.
Risk of Supply Disruptions
Lower refinery runs could create a double pressure on Pakistan’s petroleum supply chain.
Reduced domestic refinery production would increase the need for additional diesel imports at a time when international HSD cargoes are themselves attracting exceptionally high premiums and may not be fully covered by the existing pricing formula.
Industry officials stressed that the issue extends beyond the profitability of individual OMCs and refineries. OMCs need realistic recovery of import costs to continue booking cargoes, while refineries require predictable pricing to procure crude and maintain economically viable utilisation levels.
Pressure on either segment could ultimately translate into supply constraints for consumers.
OMC Margins Remain Unchanged
The OCAC also pointed out that OMC margins were last revised in September 2023 and have remained unchanged despite persistent inflation, rising operating and compliance costs and increasing regulatory obligations.
The council has sought the immediate notification and implementation of the pending Rs1.22 per litre increase in OMC margins.
Meanwhile, the refining sector is preparing investments of approximately $5–6 billion under the Brownfield Refining Policy.
The OCAC said investments of this scale require policy consistency, pricing predictability and financial stability.
The industry maintains that it has consistently supported the government during difficult periods but cannot continue absorbing the financial costs of repeated policy interventions.
The council has therefore urged the government to ensure consistency and continuity in the petroleum pricing formula to protect fuel supplies, refinery utilisation and planned investments in the downstream oil sector.
Story by Khalid Mustafa
