Govt reduces cap on HSD crack spread

The government has reduced the cap on the high-speed diesel (HSD) crack spread to $38 per barrel from $41.89, according to the Oil and Gas Regulatory Authority’s (Ogra) pricing sheet.

KARACHI/ISLAMABAD: The government has reduced the cap on the high-speed diesel (HSD) crack spread to $38 per barrel from $41.89, according to the Oil and Gas Regulatory Authority’s (Ogra) pricing sheet.

The revised cap is below the average international diesel crack spread of $45.40 per barrel recorded so far in October. The arrangement will remain in place for three months.

The government first introduced an HSD crack spread cap in April 2026 but removed it on May 22 after international refining margins returned to more normal levels. It reinstated the cap on August 20 at $41.89 per barrel for two months, with the previous arrangement due to expire around October 19 or 20.

The latest reduction comes amid expectations that international refining margins will weaken in the second quarter of the 2026-27 fiscal year.

The decision followed a meeting between government officials and refineries, a participant told The News. The government had proposed lowering the cap to $30 per barrel, but refineries sought a $38 cap, which was ultimately agreed, the participant said.

Asad Ali, an analyst at Topline Securities, said crude oil procurement had become more difficult because supplies under term contracts with Saudi Aramco remained constrained. Turnaround times at Yanbu port had reportedly increased to 20-22 days, while shipping schedules remained uncertain. Refineries had consequently turned to spot purchases from Fujairah to meet their needs, he said.

Refineries generally obtain crude through international traders such as Vitol and through direct supply contracts with producers including Saudi Aramco and the Abu Dhabi National Oil Company (Adnoc), Ali said.

Market assessments assumed an additional crude procurement cost of about $8 per barrel above Platts Dubai crude prices. The estimate reflected a $12-per-barrel premium on spot cargoes, which account for half of procurement, and an additional $2 per barrel on the remaining contractual supplies routed through Yanbu, he said.

Aggregate gross refining margins (GRMs) are projected to fall to about $14.20 per barrel in the second quarter of fiscal 2026-27, from approximately $27.10 in the first quarter, according to the analysis.

“The pressure is expected to be more pronounced for coastal refineries dependent on imported crude, which remain vulnerable to higher international premiums and freight expenses,” Ali said.