Pakistan plans Russian-Saudi oil 'cocktail' to help cut energy cost - Reuters

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• Pakistan Refinery Ltd
• Parco Oil SRL

May 9 (Reuters) - Pakistan is planning to blend newly purchased Russian crude with Arabian light crude in order to create a mixture that will be more easily processed by the nation's oil refineries, Pakistan's energy minister said on Tuesday.

The country is planning to purchase Russian crude oil at a discount as high prices caused by geopolitical tensions have caused fuel prices to more than double in Pakistan.

Western countries that have imposed a $60 per barrel price cap on Russian oil as part of sanctions on Moscow for its invasion of Ukraine say that the cap is also forcing Russia to sell oil to developing countries at lower prices.

Russia's heavier grades of crude oil are more difficult to process in Pakistan's refineries, which are configured to process lighter Arabian crudes, Petroleum Minister Musadik Malik told Reuters in an interview in Washington on Tuesday.

Malik said he met with Biden administration officials and companies about energy transition technologies like hydrogen and solar power.

Under the deal with Russia, Pakistan will buy only crude oil, not refined fuels, with Islamabad targeting imports of up to 100,000 barrels per day (bpd) if the first transaction goes through smoothly.

Malik declined to comment on the price of the deal.

Pakistan plans to blend "various recipes" of lighter Arabian crudes and Russian crude to create the "perfect cocktail" that could meet up to a quarter or a third of Pakistan's refinery demand.

"It also depends on what discount we get and how much Urals or lighter crude is available in the market," Malik said, adding that the country will also have to consider how the blend will change the yield of refined products that are sold at different prices.

Pakistan Refinery Limited (PRL) will initially refine the Russian crude in a trial run, followed by Pak-Arab Refinery Limited (PARCO) and other refineries later.

The discounted purchase offers much-needed respite to cash-strapped Pakistan, which has been struggling to avert a balance of payments crisis as it awaits an IMF deal.

Pakistan is undertaking several measures, including raising fuel prices, to unlock a $1.1 billion tranche of aid from the International Monetary Fund.

Fuel prices have jumped 143 rupees ($0.5046), or nearly 100%, in the last 12 months. Inflation stands at a record high of 36.4% for April, significantly diminishing purchasing power for individuals and companies.

Malik said the deal is centered around crude oil and not refined products because it was more difficult to get a discount on higher-priced diesel.

Fuels including diesel became more expensive globally after Russia invaded Ukraine, which resulted in Western nations that consume large quantities of diesel imposing sanctions on Russian oil.

Moscow has called its action in Ukraine a "special military operation."

Malik also cited a 50-year-old contract with Kuwait that provides Pakistan with a discount on some fuel products.

Pakistan hopes to increase the low utilization of its own refinery infrastructure, which the nation says operates at between 50% and 70% of capacity.

Pakistan's refineries are under additional pressure as dealers say that 35% of diesel sold in the South Asian country has been smuggled illegally from Iran, undercutting demand and tax revenue from sales.

"It's not just large-scale smuggling ... because of the porous boundaries it's like villagers and local people taking lorries and filling them up with tankers and bringing them into Pakistan and selling them," Malik said.

The country’s oil product sales dropped 46% to 8.8 million barrels in April compared with last year, according to the Oil Companies Advisory Council in Pakistan.

Malik said the country is working with border enforcement agencies to help curb fuel smuggling.

Reporting by Laura Sanicola and Timothy Gardner in Washington Additional reporting by Sudarshan Varadhan in Singapore Editing by Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

Laura Sanicola

Thomson Reuters

Reports on oil and energy, including refineries, markets and renewable fuels. Previously worked at Euromoney Institutional Investor and CNN.

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