Pakistan’s oil refineries are facing fresh financial pressure as international petrol prices have fallen below crude oil prices, pushing refining margins into negative territory for the first time in recent history.
According to Topline Research, petrol refining margins dropped to negative $1 per barrel on a seven-day rolling average basis as of November 6. International petrol prices stood at $105.90 per barrel, compared with Dubai crude oil at $106.90 per barrel. On November 5, the daily refining margin fell further to negative $5 per barrel.
The decline became visible in international price data compiled by OGRA and Topline Research. Petrol and Dubai crude prices moved relatively closely throughout much of October before falling sharply towards the end of the month. By November 5, petrol prices had dropped below crude oil prices, putting additional pressure on refinery profitability.
Refining margins, also known as cracks, represent the difference between the selling price of refined petroleum products and the cost of crude oil used to produce them. When petrol prices fall below crude oil prices, refiners face losses on petrol production.
The situation has become more challenging for domestic refineries following the imposition of a Rs. 49 per litre levy on petrol. The combination of negative international refining margins and the additional domestic levy is expected to further squeeze the profitability of Pakistan’s refining sector.
The latest development adds to the financial challenges facing local refineries as international fuel prices and domestic levies continue to affect their operating margins.
