How Petrol and Diesel Prices Are Set in Pakistan Every Day

Since 17th July, the government has been revising petrol and diesel prices every day instead of every fortnight. It also changed the formula behind those prices and made it more transparent.

So what goes into the price you pay at the pump? Here is how the daily price is calculated, what each component in a litre of petrol and diesel means, and why the pump often charges a little more than the price you see online.

The starting point is the international crude oil price. Pakistan uses benchmark prices published by Platts, a global price reporting company. Many countries rely on these benchmarks to track fuel prices.

The government doesn’t use a single day’s rate. It uses a rolling five-day average of Platts prices. For example, the price for 6th September is based on the average of 1st to 5th September.

That average is converted into rupees. Taxes, levies and margins are then added, and the result is the per-litre price.

The government narrates that the Platts system is the most transparent pricing formula. Anyone can go visit OGRA’s website and download the daily Platts data. Because the method is public and follows an international benchmark, it leaves far less room for error and manipulation.

The petrol pump price you pay has six components:

The ex-refinery price (per litre) is the base cost of petrol or diesel when it leaves the refinery gate before any taxes, transportation fees, or distributor profit margins are added.

It represents the cost to produce or import the fuel. The government regulates this price and sets it daily based on Platts data; refineries can’t set this price themselves.

The Petroleum Levy is a government tax that goes into government funds. It is the biggest component of tax in the list and it is currently fixed at Rs 80 per litre for both petrol and diesel.

Previously, this levy was above Rs 100. However, in April, when petrol prices were rising sharply, the government cut the levy and fixed it at Rs 80 per litre.

This is a per-litre charge meant to fund climate-related initiatives. This tax was applied to fuel in last year’s federal budget, but at that time the government charged Rs 2.5 per litre. Then, in the 2026 federal budget, the government increased this amount to Rs 5 per litre.

The government says petrol and diesel create carbon emissions, so this is a penalty on consumers for increasing emissions. It is charged on every litre of fuel we burn, and the revenue collected is used for climate support initiatives.

The Inland Freight Equalization Margin (IFEM) works like as a central financial pool managed by OGRA to equalize fuel prices across the country.

OGRA calculates the total estimated nationwide cost of moving fuel via pipelines and oil tankers. They divide that total cost by total national fuel consumption to arrive at a single weighted-average rate (currently Rs. 7.71 per litre).

Without it, cities near a refinery or port, like Karachi, would pay less than far-off cities like Peshawar, Quetta or Gilgit, because of transport costs.

The OMC Margin is an amount that Oil Marketing Companies (like PSO, Shell, and PARCO) earn to cover their corporate overheads, depot operations, quality control, and profit margins. This is the main revenue they earn from fuel sales.

Again, this amount is regulated and OGRA has set it at Rs 7.87 per litre; OMCs can’t set this margin on their own.

This goes to the person running the petrol pump. Oil Marketing Companies (OMCs) do not pay station owners out of their own margins, so dealer’s margin is paid by the consumer on every litre of fuel. It is also regulated, and OGRA has set this amount to Rs 9.98 per litre.

You may have noticed the pump price is often Rs 1 to 2 higher than the price circulating online. The online figure is the official OGRA-notified price, while the price you pay covers all costs involved.

Dealers add this due to the cost of bringing fuel from the nearest depot to their pump. They pass this on to their customers, leading to this difference.

The price motorists pay at the pump is not simply the international price of petrol or diesel. It is the final result of several components added together, including the international benchmark price, government levies and taxes, freight and distribution costs, and dealer and oil marketing company margins.

So, when petrol or diesel moves by a few rupees overnight, the real question is not simply whether crude oil became cheaper or more expensive. It is how the international benchmark changed and how that change flowed through the different components that make up Pakistan’s final pump price.daily pricing system introduced on July 17, the international benchmark remains the main component that can push prices up or down from one day to the next. The other fixed charges explain why the retail price in Pakistan can remain significantly higher than the underlying fuel cost itself.

Understanding this breakdown is important because it shows exactly where each rupee goes. A fall in international prices does not mean petrol will become equally cheaper at the pump, since levies, margins and other charges still remain part of every litre sold.

Let us know what you think about this mechanism in the comments?