Refineries Margins Reach Two-Year High

After plunging to a low of US$4.5 per barrel in April 2025, Gross Refining Margins (GRMs) of local refineries have significantly improved during the ongoing month, reaching a nearly two-year high of US$13.3 per barrel.

This is positive for local refineries, as their earnings are directly linked to changes in GRMs. For context, the highest GRM was recorded at US$27 per barrel in July 2022, while the average GRM over the last five years (CY20–25) stood at around US$8 per barrel.

Diesel shortage in international markets pushing overall GRMs

Despite the bearish trend in crude oil markets, a shortage of diesel in international markets is keeping diesel prices steady—thereby pushing up refinery margins (GRMs) globally.

Recently, sanctions by the US and EU on Russia’s key oil suppliers created a shortage of diesel, as Russian crudes are ideal for producing a higher proportion of mid-distillates (such as diesel and jet fuel).

These sanctions have sent shockwaves through the product market because refiners will need to readjust their crude sources, potentially affecting their production slates in the short term and creating a demand–supply gap for mid-distillates.

Read More: Refinery Margins sharply recovered to US$14 per barrel in Sep

This comes at a time when many refiners in the Middle East and Europe are planning turnarounds, while demand for diesel—particularly in Europe—remains elevated.

Spread on diesel reaching a two-year high of US$29.5 per barrel

Local refineries are now fetching stronger spreads on diesel as prices for the product have remained steady despite a decline in crude oil prices.

Notably, Analysts at Sherman Research said that international diesel prices after import duty are currently hovering around US$96 per barrel, compared to the Arab Light crude average of US$66 per barrel.

Diesel prices are now at their highest level since February 2025, when Arab Light crude was trading around US$81 per barrel. Despite the recent fall in crude oil prices, diesel prices in international markets have seen little change.

Crack on FO remains around –US$16 per barrel

Furnace Oil (FO), a negative-margin product, continues to pose a challenge for local refineries as domestic demand has become negligible following the imposition of the Carbon Levy. Refineries are now focusing on diverting FO to export markets.

Currently, FO is trading at an average of US$51.5 per barrel this month, reflecting a discount of US$16 per barrel to Arab Light crude. If exported, FO may face an additional discount of US$1–2 per barrel.

PRL and NRL stand to benefit most from rising diesel spreads

Despite widening negative spreads on FO, we believe PRL and NRL are best positioned to benefit from the current margin environment, as both have the highest share of diesel in their product slates.

For National Refinery Limited (NRL), diesel accounts for 54% of its energy products, while at Pakistan Refinery Limited (PRL), diesel makes up around 50% of total production.