Pakistan's oil refining sector has come under renewed financial pressure as gross refining margins (GRMs) plunged to around $11 per barrel in September, falling below the five-year average of $13.5 a barrel, as soaring crude premiums and deteriorating furnace oil economics squeezed refinery profitability.
The sharp decline comes after overall refinery GRMs averaged around $33 per barrel in August 2026, according to a Sherman Securities research report. The brokerage attributed the sudden erosion in margins mainly to a $12-15 per barrel increase in supplier crude premiums for September and October deliveries amid heightened security concerns related to the US-Iran conflict.
The second major drag has come from high-sulphur furnace oil (HSFO), where the negative spread has widened sharply as global demand for the fuel remains depressed. The situation could particularly hurt refineries heavily dependent on imported crude and may complicate the implementation of refinery upgrade agreements. Sherman Securities warned that such refineries could face losses in the December quarter if the prevailing GRMs persist.
Under the existing pricing formula, the government fixes the maximum diesel price by allowing refineries a spread of $41.89 per barrel over Dubai crude, besides incorporating a crude premium of negative $1.5 per barrel and freight of $8 per barrel. The firm noted that the government needs to revisit the existing diesel pricing mechanism to support the domestic refining industry.