RoydadNaft –  The Oil Ministry issued a new feedstock-pricing directive under which the 1402 formula stays fixed through the first half of the year and coefficient changes take effect from Mehr.

According to Roydad Naft, the Oil Ministry has recently issued a fresh directive on pricing feedstock and petroleum products. Under the notice, while the formula of the year 1402 (March 21, 2023–March 20, 2024) remains valid for the first six months of the year, adjustments to pricing coefficients and the mechanism for calculating refinery-product quality will take effect from the start of Mehr (September 23, 2026).

Of note for refining companies listed on the capital market is that calculations for the first half of the year are unchanged, a point that plays an important role in forecasting these companies’ revenue and profitability.

Initial reviews show that some new coefficients have improved from the past. Under these early assessments, the new formula could have a maximum 10% effect on the refineries’ position, though a more precise review of the directive’s financial effects is still under way, Saheb Arjmand, financial deputy of Isfahan Refinery, said of the changes.

In the details of the new formula, the price-discount figure for heavy crude, previously minus 6, has improved to minus 4.1. The price-discount figure for light crude has also fallen from minus 5 last year to minus 2.

Another core element of the notice is a greater role for product quality in setting prices. Under the mechanism taking effect from the start of Mehr, if products have a negative deviation from approved quality standards, they will be subject to a price adjustment. For each 1% negative deviation from indicators such as sulfur content or octane number, the equivalent of 0.2% of the price or of the payable margin will be deducted. Implementing this approach widens the gap in financial performance between higher-quality refineries and companies with product-standardization challenges, and doubles the need for modernization and quality-upgrade plans at refining units.

The “emergency clause” has also been retained in the new directive. It allows the Oil Ministry, in crisis conditions, sharp swings in global markets, or geopolitical developments, to intervene in the application of the formulas and temporarily use alternative frameworks—an authority whose use is of great importance to capital-market participants.

With issuance of the directive, part of the ambiguity around feedstock and product pricing has been removed, but its final effect on each refinery’s profit will differ. Because of differences in the type of feedstock received, product mix, compliance with standards, and operating conditions of each company, no general judgment can be made of a definite rise or fall in profitability for all refineries, and a precise assessment of the effects requires a separate review of each company. Fixing the 1402 formula for the first six months and changing the coefficients from the start of Mehr are the two main axes of the notice that have drawn the attention of refining shareholders—a change that distinguishes companies leading in quality upgrades from the others.