Diesel pricing gap continues to benefit refineries despite adjustment

ISLAMABAD: A flaw in Pakistan’s petroleum pricing system has allowed local refineries to earn massive profits while consumers continue to bear higher fuel costs, despite a recent revision in the pricing formula.

Industry data for March and April 2026 shows that a sharp gap between international diesel prices and crude oil benchmarks led to unusually high refinery margins. Under the existing Import Parity Pricing (IPP) mechanism, local fuel prices are linked to global benchmarks, with refineries protected through fixed margins.

In March, diesel prices averaged significantly higher than crude oil, creating an abnormal spread. This imbalance resulted in estimated extra earnings of around Rs60 billion for refineries during the month, including a large share in its final week.

Although the government later introduced a temporary cost-plus pricing model for three months, the issue has not been fully resolved. Data indicates that diesel prices in April still remained elevated compared to crude-based benchmarks, leaving fuel roughly Rs30 per litre overpriced.

Industry sources say authorities were alerted early but failed to act in time, allowing the financial impact to shift to consumers. Even after revisions, concerns remain that refineries continue to benefit from additional margins.

The issue has also reflected in refinery financial results, with major firms reporting a sharp rise in profits for the January–March quarter, largely driven by high diesel margins.

With another potential fuel price increase under consideration, critics are calling for stronger regulatory action, including aligning local prices more closely with crude oil rates and recovering excess gains from refineries.