Refineries’ Margins Decline
Staff Report:
Where international oil prices are tumbling, gross refining margin (GRMs) of local refineries have also been showing consistent decline over the last 3 months.
This means that oil product prices fell sharply compared to crude as demand for refined product remained sluggish.
Considering the fact that ongoing GRMs are already below historic average of US$6/bbl, global tariff war may create uncertainty about oil demand which may pose risk to GRMs in short run.
In today’s briefing we also present our earnings estimates for PRL and ATRL,” Sherman Research said adding that oil price showing signs of weakness During CY25YTD, Arab light crude oil prices fell by 12% while price of benchmark WTI sharply reduced by 14%.
Interestingly, ever since US announced reciprocal tariffs in beginning of this month, Arab Light sharply reduced by 17% while WTI fell by 11%.
This sell off in crude market is in line with decline in global stock markets as Tariff war has created ripple effect across all markets.
However, we have seen global stock markets slightly recovering after US deferred Tariff hike for 3-months but no respite seen in oil prices indicating that 1) demand for oil products seems sluggish despite upcoming summer driving season in US and 2) adequate oil supply at a time when OPEC+ is ramping up output higher than initial estimates during May’25,” it said adding that for refineries, their key earnings determinant is the spread between crude oil price and product prices or GRM.Refineries’ Production Down Due to Flood of Smuggled Products
GRMs declined to US$4.4/barrel – half its peak level recorded in Jan’25 Industry GRM is the combined weighted average spread of all products refined by major refineries in Pakistan including petrol (MS), diesel (HSD), Jet fuel (JP) and Furnace Oil (FO). Spread or crack is the difference between the price of refined product and crude oil.
Refineries are now yielding lower Gross Refining Margin (GRM) on every crude they process. During ongoing month of April 2025, Industry GRM is close to US$4.4 per barrel which is the lowest monthly GRM in last 6 months.
Reason of sharp decline in GRMs is the decline in spread on diesel (HSD) which has now reached to US$13/bbl during ongoing month which is far lower than the level of US$20/bbl seen in Jan’25.
Diesel is a major product which constitute more than 40% of local refinery production. ATRL’s 3Q EPS likely at Rs32, PRL to post EPS of Rs1.4 Assuming an average GRM of US$13/bbl, we expect Attock Refinery (ATRL) to post EPS of Rs32 during 3QFY25, down 35%YoY. Moreover, the refinery is expected to operate at capacity utilization of 75%.
We expect ATRL’s gross profit to reduce to Rs3.1bn during 3QFY25 compared to Rs5.3bn during 3QFY24. Additionally, due to decline in interest rate, other income to remain lower at Rs2.8bn compared to Rs3.7bn during same period last year. We have also incorporated slight inventory losses during 3QFY25 as oil price tumbled during the end of March’25.
Similarly, we expect Pakistan Refinery Limited (PRL) to register earnings of Rs0.9bn (EPS of Rs1.4) during 3QFY25 compared to loss of Rs1.2bn (loss per share of 2.0 during same period last year. Significant improvement in earnings primarily stems from slight recovery in GRMs, lower inventory losses and reduction in FEED study cost.
