Refineries Warn Lower Margins Could Hurt Upgrade Plans

Pakistan is contemplating lowering the cap on high speed diesel refining margins to $30 per barrel from the current $41.89 limit, in an effort to curb the effect of unusually high international diesel margins on local consumers. This proposal stems from the government's concern over the surge in international diesel crack spreads, driven by geopolitical tensions and supply disruptions.

While government officials believe $30 per barrel is a reasonable margin for domestic refineries, refiners have vehemently opposed the reduction, arguing that it would hinder their ability to finance major modernization projects. Pakistan's five refineries are planning to invest $5 billion to $6 billion under the Brownfield Refining Policy, aiming to boost petrol and diesel production, expand capacity, and cut furnace oil output.

Refinery executives contend that lower margins would diminish their profits and weaken their capacity to finance the equity component of these projects. They emphasized that strong earnings during periods of favorable international crude prices should be leveraged to fortify refinery balance sheets, as refining margins can plummet sharply when global market conditions stabilize.

August's Pakistan's average gross refining margins dropped to $28.8 per barrel, compared to $36.7 in July, but significantly higher than $5.4 in August 2025. This decline was partly attributed to the government's HSD margin cap, which came into effect on August 20.