Pakistan’s Oil Refineries are set to enjoy Profit Bonanza in 1QFY2024 as Gross Refining Margin (GRMs), a pivotal factor influencing refinery earnings, has reached a record high.

As of September, most of the refineries in Pakistan are generating an average of US$15 – 17 per barrel from each unit of crude they process. This level of profitability is sufficient to cover processing and other fixed costs, marking the highest monthly GRM recorded in CY23 in Rupee terms.

In September 2023, refineries are currently achieving their highest spread of US$35 per barrel on diesel (including a duty protection of 7.5%). On the other hand, the average spread for Furnace oil has remained around -US$12 per barrel, while for petrol, the average spread is US$10 per barrel. When converting the Average US$17 per barrel for all fuel combined, into the local currency, the September GRM stands at a record high of approximately PKR 5,200 per barrel. In local currency terms, this GRM is the highest seen since last year.

As a result of healthy international Gross Refining Margins (GRMs) in rupee terms and substantial inventory gains, it is anticipated that refineries will post record earnings in 1QFY24.

So far in 1QFY24, the average GRMs have remained around US$10 per barrel, which is 2.5 times higher compared to the average GRM of US$4 per barrel during the previous quarter. Despite the fact that the average GRMs during 1QFY24 were lower than the peak quarterly GRM of US$23 per barrel recorded in 4QFY22, inventory gains are expected to translate into the highest quarterly earnings ever for refineries during 1QFY24. This will offset the anticipated exchange losses.

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