Refineries seek weekly price review

Say such revisions will better reflect global market moves, aid efficient planning

ISLAMABAD:

Refineries have called for a shift to weekly oil price revisions to better reflect international price movements, reduce pricing lags and support efficient supply planning across the downstream sector.

At present, petroleum product prices are reviewed every fortnight. In a joint letter, oil refineries have expressed concern over the Oil and Gas Regulatory Authority's (Ogra) conduct while deciding on diesel procurement.

OCAC, in the letter sent to Ogra chairman, said, "At the outset, we wish to express our serious concern regarding the professional conduct of a (product review) meeting. Not only did the issues raised remain inconclusive, but also the meeting was ended abruptly and hastily, ostensibly due to another meeting that Ogra had already scheduled."

In particular, it said, no clear direction was provided by the regulator about the procurement of high-speed diesel (HSD) by the oil marketing companies (OMCs). As a result, diesel sale arrangements for the current month as well as the upcoming month continue to remain uncertain, which complicates supply planning by the local refineries.

In the absence of clear regulatory directions on product purchase, OCAC said, the refineries continue to face structural constraints in aligning production, inventories and dispatches, particularly during downward pricing trends. "This situation affects the orderly functioning of the market and undermines effective supply planning across the value chain."

Moreover, where refinery supply obligations are enforced uniformly across pricing cycles, OCAC stressed that it is equally important that the associated regulatory framework operates consistently across market conditions. "If procurement mechanisms remain constrained during downward pricing cycles, it would be appropriate to also review mandatory refinery supply obligations during upward pricing trends, so as to avoid policy asymmetry and ensure balanced market outcomes."

With regard to jet fuel imports, the industry body said that jet fuel should not be linked with, or commingled with, HSD import cargoes in situations where there is no actual requirement for HSD imports and should be discussed separately.

Jet fuel is a distinct product with an independent/niche market and should, therefore, be imported separately on the basis of its own demand and supply requirements.

Commingling of jet fuel with HSD cargoes, where HSD imports are not required due to a massive glut, should be avoided, as it exacerbates existing procurement constraints and further complicates product offtake. Under the current downward pricing trend, such an approach would intensify inventory pressures and undermine effective supply planning, without serving any underlying supply necessity, the letter said.

Refineries also pointed to the "emerging distortion" in jet fuel pricing. When jet fuel cargoes are not imported, domestic jet fuel prices are significantly lower, they said, adding that this divergence is adversely impacting refinery economics, thereby making Jet A1 production unviable given that they are already incurring a huge loss on furnace oil exports.

In order to address the issues in a holistic manner, they underlined the need for clear regulatory directives on HSD purchase and sale arrangements for the current and upcoming months to enable orderly supply planning by the refineries and OMCs.

They proposed that linking and commingling of jet fuel with HSD import cargoes be avoided in situations where there is no actual requirement for HSD imports in the country. Also, jet fuel pricing be aligned with the international market benchmarks and import parity price, and the existing pricing formula be reviewed and revised to reflect prevailing market dynamics.

They emphasised that a weekly pricing mechanism should be considered to better reflect international price movements, reduce pricing lags and support efficient supply planning.

Refineries requested Ogra to consider the above matters and issue clear post-PRM (product review meeting) policy guidance to support orderly market operations, supply continuity and a consistent regulatory framework.