The government has capped the diesel crack spread at $41.5 per barrel to limit the impact of high international diesel prices on domestic consumers, allowing it to cut the price of high speed diesel by Rs. 32.63 per liter to Rs. 363.69 per liter.
At the same time, the government increased the price of petrol by Rs. 2.97 per liter to Rs. 337.51 per liter. The latest pricing decision means diesel consumers have received substantial relief even as international oil markets remain under pressure.
Under the normal pricing formula, the international diesel crack spread was around $68 per barrel. Applying that level would have pushed the domestic HSD price significantly higher. Instead, the government agreed with domestic refineries to use a much lower crack spread of $41.5 per barrel.
The arrangement was reached after virtual meetings between the petroleum minister, petroleum secretary and the senior management of four Karachi based refineries, held on the prime minister’s directions, according to officials familiar with the discussions.
The government emphasized that around 70 percent of Pakistan’s HSD supply is produced locally by four refineries that import crude oil. It therefore sought their cooperation to absorb part of the impact of higher international diesel prices rather than passing the full increase on to consumers, reported a national daily.
Refineries rejected a proposal to reduce their gross refinery margins and instead agreed to the crack spread cap. They have, however, sought recovery of the per barrel premium paid on imported crude, arguing that the additional cost needs to be recognized in the pricing mechanism to avoid losses.
The cap is expected to remain in place until conditions in the Strait of Hormuz improve and international oil markets stabilize. The refineries have also maintained that the capped crack spread should be calculated using the cost of imported crude and the premium paid on those supplies.
While the decision provides immediate relief to diesel consumers, it could put pressure on oil marketing companies and dealers. Many may already be holding HSD stocks purchased at higher prices and could now have to sell that inventory at the lower government notified price, potentially creating losses for the downstream fuel sector.
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