Pakistan’s Refineries Face Negative Margins as Petrol Prices Drop Below Crude

Pakistan’s oil refineries are confronting a fresh financial challenge as international petrol prices have dropped below crude oil prices, pushing refining margins into negative territory. According to research by Topline Research, the petrol refining margin—commonly known as the crack—fell to negative $1 per barrel on a seven-day rolling average as of November 6. This means refineries are earning less from selling petrol than they pay for the crude oil needed to produce it.

The data shows that international petrol was priced at $105.90 per barrel on that date, while Dubai crude oil stood at $106.90 per barrel. On November 5, the daily margin had plunged even further to negative $5 per barrel. The trend is based on international price data compiled by the Oil and Gas Regulatory Authority (OGRA) and Topline Research, highlighting a rare situation where the refined product costs less than its raw material.

Refining margins, or cracks, are a key indicator of profitability for refineries. When they turn negative, refineries lose money on every barrel of petrol they produce. This development is particularly concerning for Pakistan’s refining industry, which is already under pressure from the recent imposition of a Rs. 49 per liter levy on petrol. The combination of negative international margins and the domestic levy is expected to further squeeze refinery earnings.

The negative margin environment comes at a time when the refining sector is struggling with outdated infrastructure and financial constraints. Industry experts warn that sustained negative margins could deter investment and lead to reduced production, potentially increasing reliance on imported refined products. The government has been urged to review the levy and provide relief to the sector to ensure its viability.

The decline in petrol prices relative to crude oil is part of a broader global trend. Throughout October, petrol and crude prices moved in tandem before both fell sharply toward the end of the month. By early November, petrol had slipped below crude, a rare occurrence that signals oversupply or weak demand for the refined product. For Pakistan, this global shift adds to the challenges faced by local refineries.

Stakeholders are closely monitoring the situation, as prolonged negative margins could have implications for the country’s energy security and trade balance. The refining sector plays a critical role in meeting domestic fuel demand, and its financial health is vital for the overall economy. The government may need to consider policy measures to support the industry amid these volatile market conditions.