The Ministry of Oil has announced a new pricing formula for oil feed and products, which maintains the formula for the first half of the year 1402, while changes in pricing coefficients and the method of calculating the quality of products produced by refineries will be implemented starting from October.
Main Changes in Pricing Coefficients
The main changes in the new guidelines will not be applied to the calculations for the first half of the year, which is significant for publicly traded refining companies in terms of revenue and profitability forecasts. Saheb Arjomand, the financial deputy of Isfahan refinery, stated that the initial review of the new coefficients indicates an improvement in some figures compared to the past. According to preliminary assessments, the new formula could impact refineries by up to 10 percent. Additionally, the heavy oil price differential, which was negative 6 last year, has reached negative 4.1 in the new formula. Meanwhile, the light oil price differential has decreased from negative 5 to negative 2.
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The Role of Product Quality in Pricing
Another notable change in the new guidelines is the increased role of the quality of refining products in determining prices. According to the new mechanism, starting from the beginning of October, if there is a negative deviation of the produced product from the established quality standards, adjustments will be made to the price. For every one percent negative deviation from quality indicators such as octane number or sulfur content, 0.2 percent will be deducted from the price or benefits paid. This mechanism can highlight the difference between refineries with higher quality products and those that still face challenges in standardizing their products in their financial performance. Therefore, the importance of implementing quality improvement projects and modernizing refining units will increase.
The announced guidelines also include a mechanism for special and critical conditions. According to the emergency clause, the Ministry of Oil can intervene in the implementation of the new formulas in case of special conditions or severe fluctuations in global markets and temporarily use alternative frameworks. The existence of such a clause allows policymakers to respond to abnormal conditions in the volatile global oil market.
Consequences of the New Formula on Refinery Profits
With the issuance of this guideline, part of the ambiguity regarding the pricing of feed and refining products has been resolved, but its final effect on the profit of each refinery will not be the same. The type of feed received, the product mix, the quality of the produced products, and the degree of compliance with established standards can change the outcome of the new formula. As a result, it cannot be said that the increase or decrease in profits for all refineries is definitive based solely on changes in coefficients, and the precise effects of the guidelines should be examined separately for each company.
The stabilization of the formula for the first six months of the year 1402 and the change of some coefficients starting from October are two important aspects of the new announcement from the Ministry of Oil that can attract the attention of shareholders in refining symbols. From the beginning of October, the quality of products will play a more significant role in the financial calculations of refineries. This change could place companies with successful quality improvement projects in a different position compared to other refineries.
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