Pakistan caps HSD spread as diesel margins surge
For context, the pricing mechanism, agreed in consultation with local refineries, will remain in effect for two months unless the international HSD crack spread falls below $41.89 per barrel.
For context, the pricing mechanism, agreed in consultation with local refineries, will remain in effect for two months unless the international HSD crack spread falls below $41.89 per barrel.
Article outline
- What happened
- The key numbers
- Why it matters
- The bottom line
Key points
- Sherman Securities estimates that the HSD cap could reduce refinery gross refining margins by regarding $10 per barrel, assuming HSD accounts for 45% of average industry production.
- The HSD spread had surged to around $65 per barrel in recent days since of a global diesel shortage, compared with its historical average of concerning $20 per barrel.
- Sherman Securities remarked the unusually high spread was considered unsustainable and the market had already been expecting administration intervention.
- While margins are anticipated to remain supportive of the sector, sherman Securities remarked the adjustment should therefore have a limited surprise impact on refinery valuations.
- Despite these risks, the brokerage expects the refinery sector to remain backed by relatively robust margins after the government's intervention.
Meanwhile, the HSD spread had surged to around $65 per barrel in recent days since of a global diesel shortage, compared with its historical average of concerning $20 per barrel.
Under the new mechanism, the administration will additionally reimburse extra premium and freight costs when crude is imported from outside the Gulf region, unlike the previous capping arrangement introduced a number of months ago.
Despite the projected decline, the brokerage stated refinery margins would remain healthy. Industry GRMs are estimated at around $19 per barrel after the cap, still well above the historical average of regarding $6 per barrel.
In practice, the research house maintained its "Over-Weight" stance on the refinery sector, saying the market had already anticipated a reduction in the exceptionally high HSD spread of $65-$70 per barrel.
For context, the report identified volatility in global oil rates, currency movements, changes in refining margins, interest-rate fluctuations and lower refinery offtake due to higher imports as key risks to the sector.
For now, pakistan caps HSD spread as diesel margins surge remains the part of the story worth watching, and further updates are likely as more details are confirmed.