A significant irregularity in Pakistan’s petroleum pricing system has resulted in substantial profits for domestic refineries while consumers continue to face high costs, even after recent government revisions to the pricing formula. Analysis of official pricing data from March and April 2026 reveals a persistent wide gap between international diesel prices and crude oil benchmarks, enabling refineries to reap extraordinary margins despite regulatory changes.
Pakistan’s pricing mechanism links petroleum products to global benchmarks through the Import Parity Pricing (IPP) model. Refineries receive ex-refinery prices based on these benchmarks along with protected margins via deemed duty, whereas the Oil and Gas Regulatory Authority (Ogra) determines retail prices after adding applicable taxes and distribution expenses. The key driver of refinery profits is the “crack spread,” which is the difference between crude oil costs and refined product prices. While this spread usually remains stable, it widened sharply in March, causing a major pricing distortion.
Data indicates that in March 2026, diesel prices based on Platts averaged $193.96 per barrel, compared to $108.45 per barrel for Arab Light crude, reflecting a ratio of approximately 180%. Historically, diesel should have been priced near $124.72 per barrel. Instead, the excess margin averaged $69.24 per barrel, equating to Rs121.51 per litre at the ex-refinery level. This disparity peaked on March 30, when diesel prices surged to $250.63 per barrel while crude stood at $113.69 per barrel, pushing the spread to roughly 220%.
With local diesel production recorded at 490,000 metric tons, refineries are estimated to have earned an additional Rs60 billion in profits during March alone, including around Rs25 billion in the last week of the month. Despite early signs of this anomaly, the government did not intervene promptly. The delay allowed refineries to benefit from abnormal gains while consumers bore the cost.
In response to growing criticism, the government introduced a temporary cost-plus pricing formula in April for a three-month period, replacing the import parity model. Under the new system, diesel prices are calculated based on Dubai crude plus a fixed crack spread of $52.89, which includes premium and freight charges. Although the formula suggests a lower crack spread limit of $11.33, regulators have opted to apply the highest allowable band, enabling refineries to maintain elevated profits.
Nevertheless, new data shows that while the revision narrowed the pricing gap, it did not eliminate it. In April, diesel prices averaged $189.27 per barrel compared to $115.06 per barrel for Arab Light crude, a differential of about 164%. Based on historical crack spreads, the indicative diesel price should have been $132.32 per barrel, leaving an excess margin of $56.95 per barrel, or nearly Rs100 per litre. Under the revised formula, the benchmark diesel price averaged Rs277.10 per litre, down from Rs332.16 under the previous regime but still significantly above the Rs232.22 per litre level derived from crude-based benchmarks. This indicates diesel remained roughly Rs30 per litre overpriced despite the adjustments.
Authorities were reportedly alerted to the anomaly in early April but delayed action until media exposure forced the revision. Concerns persist that the issue remains unresolved, with refineries still enjoying additional margins.
Financial reports underscore these concerns: four publicly listed refineries posted combined gross profits of Rs72.2 billion for the January-March quarter, a sharp increase from Rs27.3 billion in the previous six months. A substantial portion of these profits is linked to elevated diesel margins in March. These figures exclude PARCO, which is not publicly listed.
Meanwhile, market insiders suggest another increase in petrol and diesel prices is under consideration, potentially adding further financial strain on consumers. Critics argue that the revised pricing formula should have been applied retroactively from March 26, with excess margins recovered. Instead, the burden continues to fall on the public, with prices reportedly raised by Rs27 despite the windfall gains.
These developments are expected to intensify scrutiny of Pakistan’s petroleum pricing framework, as calls grow for better alignment of domestic fuel prices with crude oil benchmarks to prevent undue profits at consumers’ expense.
