Pakistan's oil industry has incurred losses of approximately Rs104 billion ($367 million) following a sharp government-mandated fuel price reduction last week, according to an industry letter reviewed by Arab News. The Oil Companies Advisory Council (OCAC), representing oil marketing companies and refineries, warned that repeated changes to pricing rules are undermining confidence in the sector.
Losses Stem from Global Oil Market Retreat
The losses resulted from a sudden reduction in fuel prices after global oil markets retreated following an interim US-Iran deal that ended months of conflict and led to the reopening of the Strait of Hormuz, a critical shipping route for about one-fifth of the world's petroleum trade. Oil companies said they were left holding large inventories purchased at much higher prices during the conflict and are now forced to sell those stocks at significantly lower rates.
Pakistan on June 19 cut petrol prices by Rs74 ($0.27) per liter and high-speed diesel prices by Rs67 ($0.24) per liter. The government also shifted from fortnightly to weekly fuel price reviews, stating the change would allow consumers to benefit more quickly from declines in international oil prices.
OCAC Letter Details Inventory Impact
OCAC wrote to Petroleum Minister Ali Pervaiz Malik on Sunday, stating that the latest price cut forced the industry to absorb losses on inventories of approximately 505,000 metric tons of petrol and 655,000 metric tons of high-speed diesel. “These losses represent real and immediate destruction of working capital, liquidity and shareholder value,” the council wrote, warning that the policy changes could trigger investor withdrawals and threaten the viability of weaker companies.
“The latest reduction in prices was achieved at the expense of the downstream petroleum industry by adopting yet another new pricing formula, which caused a huge exposure for the companies,” the letter read. “Critically, they have arisen not from commercial inefficiencies, operational shortcomings, or market competition, but from a unilateral policy decision imposed upon an industry already operating under significant financial stress.”
Industry Official Criticizes Policy Shifts
OCAC noted that the industry had maintained more than 20 days of strategic fuel reserves during the supply disruptions caused by the conflict and had committed to costly fuel purchases and freight arrangements to ensure uninterrupted supplies. “Pakistan’s repeated changes to the fuel pricing mechanism are severely undermining the credibility of the country’s energy policy framework,” an industry official told Arab News on condition of anonymity. “The formula appears to be altered whenever market conditions favor the government,” he said.
Usama Qureshi, vice chairman of refinery operator Cnergyico PK Limited, said regulatory uncertainty had pushed downstream energy companies to a “breaking point.” “It is becoming increasingly difficult for the industry to survive under the current unpredictable regulatory regime,” Qureshi told Arab News, calling for an immediate transition toward total deregulation and a market-based framework.
Petroleum Ministry Calls Emergency Meeting
The dispute highlights a broader policy dilemma facing governments during periods of sharp energy market swings: how to quickly pass lower international oil prices on to consumers without leaving refiners and fuel distributors holding inventories purchased at much higher prices.
Pakistan’s fuel prices surged during the US-Iran conflict after disruptions to shipping through the Strait of Hormuz raised concerns about global energy supplies and pushed up crude prices. Since a ceasefire and interim agreement were reached, international oil markets have cooled rapidly, prompting Islamabad to announce a series of steep reductions in domestic fuel prices.
In an interview with a Pakistani newspaper last week, Petroleum Minister Malik defended the government’s decision to pass on the benefit of lower international prices immediately, saying consumers deserved relief after months of elevated fuel costs. “We played no role in creating this crisis,” Malik said, crediting the government and military leadership for helping secure a diplomatic resolution that eased international oil markets. “The fruits of that are indeed being translated to the public today.”
Petrol is the primary transport fuel used by most private vehicles, motorcycles and rickshaws in Pakistan. During the conflict, prices climbed above Rs400 ($1.40) per liter at one stage, placing additional pressure on households already grappling with inflation.
Petroleum Minister Malik and a spokesperson for the Petroleum Division did not respond to Arab News requests for comment on the industry’s claims of inventory losses. However, an official notification issued on Monday and seen by Arab News showed the ministry had called an emergency meeting between the minister and chief executives of oil marketing companies and refineries in Islamabad on Tuesday morning to discuss the industry’s concerns.
Malik said a high-powered government committee was also working on broader reforms aimed at increasing transparency in fuel pricing. He said the government hoped to place a digital calculator on the regulator’s website within weeks that would allow the public to track international oil prices, shipping costs, taxes and other components that determine domestic fuel prices.
