Pakistan Refinery Margins Tumble to $11/Barrel, Below 5-Year Average

After reaching average of US$33 per barrel in August 2026, overall refinery GRMs tumbles
to US$11/bbl which is below 5-year average GRMS of US$13.5/bbl during last 5 years.

Analysts said that this sudden reduction in GRMs during September is due to 1) increase in supplier crude premium for Sept and Oct deliveries by US$12-15/bbl considering heightened security
concerns in US-Iran conflict and 2) sharp increase in negative spread on Furnace oil
(HSFO) as demand for this fuel remained depressed, globally.

Considering lower than historical GRMs, we believe that those refinery which mainly rely
on imported crude will face difficulty to sign refinery upgrade agreements as they may
face losses in Dec quarter if these GRMs continue. Thus, government needs to make
some amendments in current diesel oil pricing mechanism by incorporating higher crude
premium of US$12-15/bbl instead of -1.5/bbl or by removing custom duty on HSD.

Read More: Refineries Margins Reach Two-Year High

HSD effective spread at US$33/bbl versus on paper HSD spread of US$41.89/bbl
Currently as per the formula, government fixes maximum diesel price by allowing spread
of US$41.89 to refineries over dubai crude and also allow crude premium of US$-1.5/bbl
and freight of US$8/bbl. However, in reality due to security concerns, crude premium is
around US$12-15/bbl for September deliveries.

Thus, assuming Arab light crude price of US$95/bbl, landed cost of crude is estimated to be around US$115/bbl for September after incorporating premium and frieght. Thus, with recent HSD price of US$148/bbl, effective spread arrives at S$33/bbl.

FO spread further reduce to negative US$39/bbl

Unlike crude price hike, FO price remained stagnant at around US$76/bbl during ongoing
month. However, crude price including premium increased by 27% for import based local
refineries in Pakistan since end of August 2026. This has increased average negative
spread from US$15/bbl in August to current negative US$39/bbl in September2026.

Spread on MS reduced to US$14/bbl

Similarly, due to increase in crude premium, crack spread on MS (petrol) also reduced to
US$14/bbl compared to average crack spread of US$27/bbl during August 2026.
Local refineries already giving discount of US$30-35 per barrel on HSD
In this difficult situation where product availability is an issue with pricing touching new
peaks on daily basis, local refineries have forgone margin of US$30-35 per barrel on diesel
as they are giving monthly benefit of Rs30-32bn a month to consumers by absorbing
higher global diesel prices.