Q1FY27 earnings could remain strong: HSD margin cap may limit refinery upside: Topline

KARACHI: The government has capped the diesel crack spread at USD42 per barrel, excluding freight and insurance premiums, in a move aimed at protecting consumers from higher refined petroleum product prices.

Topline Research analyst Asad Ali noted that the diesel, or high-speed diesel (HSD), crack spread over crude oil had averaged USD65.03 per barrel during the preceding two weeks, while the average spread since July 2026 stood at USD55.6 per barrel.

The cap would remain in place for two months, although the government could reconsider the mechanism earlier if geopolitical conditions improve and international petroleum prices decline.

Topline said it expected the HSD margin cap could remain in place until international refining margins and market conditions return to normal.

The government had introduced a similar measure in April 2026, when it capped the HSD spread. However, the measure was subsequently withdrawn on May 22, 2026, after changes were made to the petroleum products’ pricing formula and frequency, while international refining margins had also returned towards normal levels.

Despite the latest cap, Topline Research said domestic refineries could continue to generate sizeable profits because the capped HSD spread remained substantially above its historical average. The 10-year average HSD crack spread was estimated at USD15.8 per barrel.

The research house said the elevated refining margins could also help local refineries finance the equity component of capital-intensive plant upgradation projects being undertaken under the new refinery policy.

Based on its estimates, Pakistan Refinery Limited (PRL) could post a profit of Rs8-10 billion during the first quarter of FY27.

Similarly, Attock Refinery Limited (ATRL) could report a profit of Rs10-15 billion.

The estimates are based on average spreads over the first quarter using the actual trend observed during the preceding 50 days.

Topline assumed average spreads of USD53-62 per barrel for HSD, USD31-33 per barrel for motor gasoline (MS), and negative USD18-22 per barrel for furnace oil (FO), including applicable premiums and freight and insurance costs.

The research house clarified that its earnings estimates do not incorporate any inventory gains or losses.

Topline also noted that freight and insurance premiums typically add around USD5-8 per barrel to HSD and USD8-13 per barrel to motor gasoline.

The research note said that while the government’s HSD spread cap would reduce the exceptionally high margins currently available to refiners, the capped level remained well above historical norms, potentially allowing major refiners to post elevated earnings in 1QFY27.

Copyright Business Recorder, 2026