Pakistan’s petrol refining margins sink into negative territory
KARACHI (TKP Report): Pakistan’s oil refining sector is facing fresh pressure as international petrol cracks have turned negative, with the price of Motor Spirit (MS) falling below Dubai crude oil prices, raising concerns over the profitability of domestic petrol production.
According to Oil and Gas Regulatory Authority (OGRA) pricing data, the seven-day rolling average MS crack turned negative at minus $0.96 per barrel, effective November 6. International petrol prices stood at approximately $105.94 per barrel against Dubai crude at $106.90 per barrel.
On a daily basis, the situation was even more challenging. The MS crack fell to minus $4.96 per barrel on November 5, as petrol prices traded significantly below the crude oil benchmark.
A refining crack represents the price difference between refined petroleum products and crude oil used in their production. A negative petrol crack means the international benchmark price of petrol has fallen below the price of crude, indicating that refining crude into petrol is economically less attractive.
The development marks a sharp reversal from the trend observed over the past year. Since July 2025, international petrol prices had consistently traded at a premium to Dubai crude, with the spread at times exceeding $30 per barrel.
However, towards the end of October, both petrol and crude prices began correcting from levels above $125 per barrel. Petrol prices declined more sharply, eventually falling below crude oil prices in early November.
The negative petrol cracks come at a particularly difficult time for Pakistan’s refineries, which are already facing pressure from changes in the government’s petroleum pricing mechanism.
On October 31, the government introduced a revised pricing arrangement requiring refineries to surrender Rs49.02 per litre into the Petroleum Levy account, representing the difference between the applicable import and ex-refinery pricing components. The measure was introduced to provide relief to consumers amid elevated international fuel premiums.
Local refineries, including Attock Refinery Limited, National Refinery Limited, Pakistan Refinery Limited and Cnergyico PK Limited, have opposed the revised mechanism, warning that the additional financial burden could undermine refinery viability and delay investment commitments under the Brownfield Refining Policy.
The combination of negative international petrol cracks and the revised domestic pricing arrangement could further squeeze refining margins, although the overall financial impact will depend on the profitability of other products, particularly High-Speed Diesel (HSD), as well as crude procurement costs and the refineries’ product mix.
If negative petrol cracks persist, domestic refiners could face weaker incentives to maximise petrol production, potentially increasing reliance on imported finished petroleum products.
Such a development could add to Pakistan’s petroleum import requirements and place further pressure on foreign exchange reserves at a time when the country remains exposed to volatility in international energy markets.
The emerging situation also raises questions about the financial sustainability of the domestic refining sector and the government’s ability to balance consumer relief with the need to maintain local refining capacity and investment.