Pakistan's oil refineries have secured regulatory approval to export around 185,000 metric tons of fuel oil in August, on condition that they maintain adequate strategic reserves to meet the needs of the country's domestic power generation sector, according to notifications from the Oil and Gas Regulatory Authority (OGRA) seen by Platts. The reserve requirement reflects the fuel's continuing role as the grid's fallback feedstock: even as Pakistan discourages burning furnace oil for power, fuel oil-fired plants remain the option authorities turn to when gas supplies fall short.

OGRA has cleared fuel oil exports of 50,000 mt for Pak-Arab Refinery Co., 45,000 mt for Cnergyico Pk. Ltd., 40,000 mt for Pakistan Refinery Ltd. and 50,000 mt for National Refinery Ltd., according to separate notifications dated Aug. 12 that Platts reviewed on Aug. 19. Each approval is conditional on the refinery maintaining strategic reserves sufficient to cover the power sector's requirements.

The August clearances extend an export trend that has gathered pace as domestic consumption of furnace oil has weakened. Pakistan's refineries exported about 1.453 million mt of fuel oil in fiscal year 2025-26 (July-June), up from about 1.3 million mt the previous year, according to data from the Karachi-based Oil Companies Advisory Council (OCAC). Low-sulfur fuel oil exports reached 180,469 mt in FY 2025-26, compared with 137,880 mt a year earlier, the same data showed. Multiple industry sources said structurally weak domestic demand for furnace oil has left significant surpluses at older refineries, driving the rise in exports. The export barrels also earn foreign exchange for Pakistan, which imports the bulk of the crude oil its refineries process.

Aging refineries face surplus

Pakistan's refining sector is under mounting pressure as domestic demand for furnace oil continues to decline while older, simple refineries retain relatively high fuel oil yields, according to a report by Karachi-based brokerage Arif Habib Ltd. (AHL) seen by Platts. Hydroskimming is a basic refinery configuration that lacks the secondary conversion units, such as catalytic crackers and cokers, that complex refineries use to break heavy residue into lighter, higher-value products, which leaves such plants producing large residual fuel oil streams.

The aging hydroskimming refineries produced furnace oil equivalent to about 21% of total refinery throughput in FY 2025-26, generating persistent surplus volumes that must be exported, often at discounted international prices, AHL said in a note. This has weighed on refiners' profitability, particularly as domestic policy measures have further eroded furnace oil's competitiveness, the brokerage added.

Over the past two years, Pakistan's government has actively discouraged the use of fuel oil and furnace oil for power generation, favoring cheaper, cleaner alternatives such as gas and renewables. Separately, the government has offered fiscal incentives under its brownfield refining policy to encourage existing refiners to upgrade their plants and reduce fuel oil output.

LNG supply crunch buoys fuel oil-fired utilities

Fuel oil-fired power generation surged in July, as disruptions to LNG supplies from Qatar amid the ongoing conflict in the Middle East reduced feedstock available to gas-fired power plants. Qatar is Pakistan's largest LNG supplier, mainly under long-term contracts, so interruptions to those cargo flows leave the power sector short of feedstock.

Electricity output from fuel oil-fired plants nearly doubled year over year to 215 gigawatt-hours in July, from 108 GWh in July 2025, said Bazif Memon, a research analyst at Karachi-based stock brokerage and financial advisory firm Optimus Capital Management (OCM). Fuel oil-fired generation had totaled about 100 GWh in June, according to OCM data.

"Due to the disturbance in the Middle East, LNG cargoes from Qatar reduced sharply," Memon told Platts on Aug. 19, adding that the supply disruptions have forced the government to run fuel oil-fired power plants rather than rely on regasified LNG. Only five LNG cargoes arrived in Pakistan in July, compared with 10 vessels in July 2025, Memon said.

According to local market sources, the increased use of fuel oil for power generation has provided some temporary near-term support to domestic demand, but refinery production continues to outpace structural consumption.

Asian market fundamentals

The Asian high-sulfur fuel oil (HSFO) market remains well supported by persistent supply tightness, as prolonged uncertainty over Strait of Hormuz traffic has disrupted oil flows from the Middle East in recent months and pushed downstream bunker premiums higher in recent weeks, according to trade sources. HSFO is consumed mainly as marine bunker fuel, and Singapore, Asia's largest bunkering hub, is a key destination for regional surplus cargoes.

Platts, part of S&P Global Energy, assessed the Singapore 380 CST HSFO cargo cash differential to the Mean of Platts Singapore 380 CST HSFO assessment at a premium of $33.39/mt at the Aug. 19 Asian close, its highest level since May 6, when it was assessed at a premium of $38.98/mt.

Singapore imported 92,459 mt of fuel oil from Pakistan in June, but there have been no arrivals from the South Asian country in July or so far in August, according to Enterprise Singapore data compiled by Platts.

While the Asian HSFO market remains tight, some trade sources expect that the gradual wind-down of the summer power-generation demand season will likely free up supplies, potentially helping to cool fundamentals over the coming weeks. For Pakistan's refiners, subsequent OGRA clearances and the appearance of Pakistani cargoes in Singapore's import data will show whether surplus volumes keep flowing abroad as domestic demand provides only limited relief.

Source: Platts