Examining the diesel conundrum

The year 2022 was difficult for oil-importing countries, including Pakistan, as commodity prices shot through the roof. The steep increase in the cost of refined products, such as diesel, placed a significant strain on their trade balances and left consumers feeling the pinch at the pump. With a volatile global market, government officials in Pakistan must take proactive measures to mitigate any potential crisis in the future. Diesel is a kind of middle distillate, as opposed to lighter distillates such as gasoline and heavier distillates like furnace oil. These distillates, as the name implies, are produced when crude oil goes through the distillation process and other stages of treatment in an oil refinery. What sets the middle distillates apart is that they are mainly used in the commercial sector. They are consumed by freight transportation, agriculture, manufacturing, and other industries. Their demand, therefore, primarily comes from economic activities. The demand for diesel skyrocketed in 2022 as the global economy rebounded from the pandemic. On top of this, supply-side issues, such as inadequate distillate production in two of the world’s biggest producers of refined products — the US and China — as well as the Russia-Ukraine conflict, led to record-high refining margins for diesel. The refining margin is the difference between the price of a refined product and the cost of crude oil.