Why Petrol Prices in Pakistan Fall More Slowly Than Oil Prices

Most people have had the same experience. The news says crude oil has fallen sharply, yet the petrol price at the pump drops by a small amount, or not at all. It is natural to suspect that someone is keeping the savings. In practice the gap usually has ordinary explanations, and understanding them helps you judge the next price announcement for yourself.

A litre of petrol is not made from today's crude

Pakistan imports a large share of its fuel, either as finished petrol and diesel or as crude oil that is refined locally. Cargoes are bought weeks before they reach a port, tested, unloaded and moved through pipelines, railway tankers and road tankers before they reach a pump. The fuel you buy today may have been priced on the international market a month ago.

This works in both directions. When international prices rise, the pump price eventually follows. When they fall, the cheaper cargoes take time to arrive, and fuel already in storage was bought at the higher price. Pricing formulas try to smooth out this lag, but they cannot remove it.

The pricing formula looks backward

Fuel prices in Pakistan are normally worked out from international benchmark prices over a recent period, not from a single day's quote. Using an average over several days or weeks avoids wild swings in the pump price. The side effect is that a sudden fall in oil prices appears in the pump price only gradually, as the lower days replace the higher ones in the average.

Oil is priced in dollars, but you pay in rupees

International oil trades in US dollars. If the rupee weakens against the dollar while oil gets cheaper, the two effects offset each other. A ten per cent fall in the dollar price can be largely cancelled by a ten per cent weaker rupee, and the price in rupees barely changes. Our article on how the exchange rate affects fuel prices walks through an example.

Much of the price is not the price of oil

The product cost, meaning the cost of the fuel itself, is only one part of what you pay. Other parts include:

• the petroleum levy and other government charges;
• the inland freight equalisation margin, which spreads transport costs across the country;
• the margin of the oil marketing company;
• the dealer's margin at the pump.

Margins and freight costs are largely fixed in rupees. If oil falls by Rs 20 per litre, the total can fall by at most that amount, and not by a percentage of the whole price. Our explainer on the petroleum levy shows how it fits into the total.

Government policy can absorb a fall

Governments sometimes use a period of lower oil prices to raise the levy instead of passing the whole fall to consumers. The reason is that fuel is an easy and reliable source of revenue, and officials may want to recover revenue lost when prices were high or when a subsidy was in place. Whatever you think of that choice, it explains why a drop in international prices does not always produce an equal drop at the pump. The decision is announced in the notification, so it is not hidden.

Why increases can feel faster

People remember price rises more strongly than falls, which makes the system feel one-sided. Part of this is psychology. Part of it is real: when prices are rising, the average used in the formula is climbing, and the effect arrives within the same period. When prices fall, the previous higher days stay in the average for a while. Over a long enough period, the formula should follow the market in both directions, even if short stretches look uneven.

How to check whether a price change is reasonable

1. Find the official notification for the revision and note the effective date.
2. Compare the new price with the last one to see the exact change in rupees.
3. Look at the movement in international prices and the exchange rate over the previous few weeks, not the previous few days.
4. Check whether the levy changed. If it rose by the same amount that oil fell, the pump price will look unchanged.

Our price table on the home page shows the current figures and how much each changed in the latest revision, which makes the first two steps easy.

What you can do about it

You cannot change the formula, but you can reduce how much the price matters to you. Knowing your monthly consumption lets you see how much each rupee change costs you. Our guide on calculating your monthly fuel cost shows how, and our fuel calculator does the arithmetic for you. A rider who uses 20 litres a month feels a Rs 5 change as Rs 100. A taxi driver who uses 300 litres feels it as Rs 1,500, so for professionals tracking the price and planning purchases is worth the effort.

Frequently asked questions

Do oil companies decide the price? For petrol and diesel the price is notified by the government following the pricing formula, and companies sell at that price. They do not set it individually.

If oil prices fall for a long time, will the pump price follow? Over a long period it should move in the same direction, because the formula is based on market prices. Delays, the exchange rate and policy decisions on the levy decide how much of the fall arrives and when.

Where can I see the breakdown? The official notification lists the main components. Compare two notifications side by side to see exactly which part changed.

The key point is that a pump price is a sum of several moving parts, and only one of them is the price of oil. When you read the next announcement, ask which part moved. For the wider picture, read our guide to fuel prices in Pakistan.