ISLAMABAD: A major anomaly in Pakistan’s petroleum pricing mechanism has led to windfall profits for local refineries and a sustained financial burden on consumers, even after the government revised the pricing formula earlier this month.
An in-depth analysis by sources within the oil industry, of official pricing data for March and April 2026, shows that a wide gap between international diesel prices and crude oil benchmarks allowed refineries to earn extraordinary margins despite revision of formula by the government, raising serious questions about the effectiveness and timing of regulatory intervention.
Under Pakistan’s pricing regime, petroleum products are linked to international benchmarks through the Import Parity Pricing (IPP) mechanism. Refineries receive ex-refinery prices based on these benchmarks along with margins protected through deemed duty, while the Oil and Gas Regulatory Authority (Ogra) sets retail prices after adding taxes and distribution costs.
The sources explain that the refinery earnings are primarily driven by the “crack spread” -- the difference between crude oil prices and refined product prices. While this spread typically follows a stable pattern, it widened sharply in March, creating an exceptional pricing distortion.
Data shows that in March 2026, Platts-based diesel prices averaged $193.96 per barrel against $108.45 per barrel for Arab Light crude, a ratio of about 180 percent. Based on historic crack spreads, diesel should have been priced at around $124.72 per barrel. Instead, the excess margin averaged $69.24 per barrel -- equivalent to Rs121.51 per litre at the ex-refinery level.
The sources insist that the disparity peaked on March 30, when diesel prices surged to $250.63 per barrel compared to $113.69 per barrel for crude, pushing the differential to around 220 percent. With local diesel production recorded at 490,000 metric tons, refineries are estimated to have earned about Rs60 billion in additional profits during March alone, including roughly Rs25 billion in the final week of the month.
Despite early warning signs, it is said the government failed to act promptly. “The anomaly should have been addressed at the beginning of March, but instead the impact was passed on to consumers, allowing refineries to make abnormal profits,” a source said.
Following mounting criticism, the government shifted in April to a cost-plus pricing formula for a temporary period of three months, replacing the import parity model. Under the revised system, diesel prices are calculated on the basis of Dubai crude plus a fixed crack spread of $52.89, including premium and freight. Although, the revised formula suggests a lower crack spread limit of $11.33 but the regulator prefers to give the highest band to the refineries allowing them to make more money.
However, the sources say, fresh data shows that while the revision reduced the pricing gap, it did not eliminate it. In April, diesel prices averaged $189.27 per barrel against $115.06 per barrel for Arab Light crude -- a differential of about 164 percent. Based on historic crack spreads, the indicative diesel price stood at $132.32 per barrel, leaving an excess margin of $56.95 per barrel, or nearly Rs100 per litre, sources claim. Under the revised formula, the benchmark diesel price averaged Rs277.10 per litre, lower than Rs332.16 under the previous regime but still significantly higher than the Rs232.22 per litre level derived from crude-based benchmarks. This implies that diesel remained about Rs30 per litre overpriced even after the revision, said the sources.
The sources disclosed that authorities were alerted to the anomaly in early April but “ignored it until the issue surfaced in the media,” prompting the eventual revision of the formula. Even after the change, concerns persist. “The anomaly has not been fully corrected, and refineries are still being allowed additional margins,” a source said.
Financial results reinforce these concerns, the source said, adding four listed refineries reported combined gross profits of Rs72.2 billion for the January-March quarter, compared to Rs27.3 billion in the preceding six months. A significant portion of these earnings is attributed to elevated diesel margins in March. The figures exclude PARCO, which is not publicly listed.
Meanwhile, market sources indicate that another increase in petrol and diesel prices is under consideration, a move that could impose an additional burden on consumers. Critics argue that the correction should have been applied retrospectively. “The revised formula should have taken effect from March 26, and excess margins earned thereafter should have been recovered,” a source said. Instead, they say, the burden continues to fall on consumers. “Rather than recovering excess gains, the government increased prices by Rs27,” the source added. The developments are likely to trigger renewed scrutiny of Pakistan’s petroleum pricing framework, with calls growing louder for aligning domestic fuel prices more closely with crude oil benchmarks and preventing windfall gains at the expense of the public.
