New Pricing Guidelines for Oil Feedstock and Petroleum Products Issued

The Ministry of Petroleum has issued new feedstock pricing guidelines. Under them, the 1402 (2023) formula remains fixed until mid-year, and coefficient changes will take effect starting Mehr.

According to Mehr's reporter, the Ministry of Oil has recently issued a new instruction for determining the price of feed and oil products. According to this notice, while the formula of 1402 remains valid for the first six months of the year, from the beginning of October, amendments will be applied to the pricing coefficients and the mechanism for calculating the quality of refineries' products.

The important point for refining companies in the capital market is that the calculations for the first half of the year have not changed; An issue that plays an important role in predicting the income and profitability of these companies.

In this regard, Sahib Arjamand, Financial Vice President of Isfahan Refinery, said about the effect of these changes: Preliminary investigations show that some new coefficients have improved compared to the past. According to these preliminary assessments, the new formula could have a maximum impact of 10 percent on refiners' bottom line, although a more detailed study of the financial effects of the directive is still underway.

In the details of the new formula, the price fraction number for heavy oil, which was negative 6 before, has been improved to negative 4.1. Also, the light oil price deficit has decreased from negative 5 last year to negative 2.

One of the main axes of this announcement is to increase the effectiveness of product quality in determining prices. According to the executive mechanism from the beginning of October, if the manufactured products have a negative deviation from the approved quality standards, they will be subject to price adjustment; So that for every 1 percent of negative deviation from indicators such as sulfur content or octane number, 0.2 percent of the price or interest paid is deducted. The implementation of this process increases the financial performance gap between higher quality refineries and companies with challenges in product standardization and doubles the necessity of implementing modernization and quality improvement plans for refining units.

Also, the "emergency clause" has been preserved in the new directive. This paragraph allows the Ministry of Oil to intervene in the implementation of formulas and temporarily use alternative frameworks in critical situations, extreme fluctuations of global markets or geopolitical developments; An option that how to use it is very important for capital market participants.

Finally, with the notification of this directive, some of the uncertainties surrounding the pricing of feed and products were resolved, but its final effect on the profit of each refinery will be different. Due to the difference in the type of feed received, the composition of products, compliance with the standards and operating conditions of each company, it is not possible to issue a general ruling on the definite increase or decrease in profitability for all refineries, and a detailed evaluation of its effects requires a separate review of each company. Stabilization of the 1402 formula for the first six months and changing the coefficients from the beginning of Mehr are the two main axes of this notification, which has attracted the attention of refining shareholders; A change that differentiates the position of leading companies in quality compared to others.