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Refineries Agree to Cap Crack Spread for Consumer Relief
The government has once again applied a formula introduced in April to keep high-speed diesel (HSD) prices in check, capping the diesel crack spread at $41.5 per barrel** compared with the international margin of around **$68 per barrel. The move allowed a reduction of about Rs32.63 per litre, bringing the domestic price of HSD down to Rs363.69 per litre, while petrol was increased by Rs2.97 per litre to Rs337.51 per litre .
The reduction marks the second time since the outbreak of the Iran war that domestic refineries have agreed to sacrifice part of their profits to help the government provide relief amid a sharp increase in international oil prices .
Negotiations and Refinery Cooperation
The arrangement was finalized after virtual meetings between the petroleum minister, secretary, and top managements of four Karachi-based refineries, held on the directions of the prime minister, officials told The News .
The government argued that around 70% of HSD is produced domestically by four refineries that import crude oil, making their cooperation essential in reducing the impact of international diesel prices on consumers . Under the normal pricing mechanism, the international diesel crack spread of around $68 per barrel would have placed significant upward pressure on domestic HSD prices .
The cap on the HSD crack spread will remain in place until the situation in the Strait of Hormuz improves and international oil markets return to normal . The refineries have sought recovery of the per-barrel premium on imported crude, arguing this cost must be incorporated into the pricing mechanism to prevent losses .
Impact on Oil Marketing Companies
While the decision provides immediate relief to consumers, it could create substantial losses for oil marketing companies (OMCs) and dealers that had already procured HSD stocks at higher prices . These companies may now be forced to sell their existing inventories at the lower revised price, effectively bearing the cost of the sudden price adjustment .
The government said the cap will remain in place until the situation in the Strait of Hormuz improves and international oil markets return to normal . However, the relief comes at a cost, as the government and refineries work to balance the pressures of a volatile global oil market with the need to shield consumers from sharp price increases.
