Refineries Margins Significantly Recovered in June 2025
Staff Report:
Islamabad: After plunging to lowest level of US$4.5 per barrel in April 25, Gross Refining Margins (GRMs) of local refineries significantly recovered to US$9.3 per barrel during ongoing month of June.
This development has been termed as a positive move for local refineries which earnings are directly linked with changes in GRMs. Just to recall, highest GRM was recorded at US$30 per barrel during July 2022 while average GRMs during last 5 years stood at US$7 per barrel.
GRMs reaching highest level in CY25, positive for all refineries GRM is the sum of the weighted average spread of products which a refinery is yielding on every barrel of crude it processes.
Major products include Diesel (HSD), Gasoline (MS) and Furnace oil (FO). Following reciprocal Tariff announcement by US administration in April, crude oil plunged in anticipation of expected reduction in global oil demand as there were fears that the US tariffs will slowdown global demand in short-term from world’s largest oil consumer.
Surging Diesel Margins: An Unexpected Windfall for Refiners
However, products market took a toll and fell more than crude oil prices which resulted into reduction in spread of major products, impacting negatively on GRMs (fell to CY25 lowest level of US$4.5 per barrel).
Having said that, GRMs rebounded sharply in May and further improved to US$9.3 per barrel during ongoing month, as US now seeking trade negotiations, which improved products prices compared to crude. Besides expected ease in US Tariffs, ongoing summer driving season is also supporting demand which in turn has led to improvement in GRMs.
Spread on FO improving, Positive for PRL Local refineries are now yielding better spread on FO as price of this product remains steady despite reduction in crude oil prices.
Interestingly, international FO prices is currently hovering around US$61 per barrel compared to Arab light crude oil Price of US$64 per barrel. Thus, currently there is a negative spread of only US$3 per barrel on FO which is better than last 3-year average spread of negative US$20 per barrel.
Thus, refineries are currently yielding better spread on FO. This is positive for CNERGY and PRL which has highest FO share of 53% and 29%, respectively in their production slate. Similarly spread on MS is also improving to US$7 per barrel which is highest in last one year.
On the flip side, spread on HSD reduced over the last few months. GRMs are said to be improved QoQ basis.
However, inventory Loss are to Hit 4Q Earnings based on assumed average GRM amounting to US$9/bbl which may prevail during the remaining period of the moth. Average GRMs during 4QFY25 is likely to be slightly above US$7 per barrel, up 10%QoQ.
However, given the fact that crude oil prices fell by an average 12%QoQ, local refineries may face inventory losses which will affect their earnings.
“We expect higher inventory losses in those refineries which rely on imported crude including PRL, NRL and CNERGY,” Sherman Research said.
Update on Upgrade Projects Under New Policy Although the sales tax issue which was holding refineries for signing upgrade projects under new refinery policy has been resolved, we believe that refineries are now planning to incorporate any review clause for the incentives which are given in new refinery policy. We believe that such an inclusion is important given the fact that refinery margins are very volatile.
If this is re-evaluated by the concerned ministry it may further delay the signing of the upgrade projects,” it added.
