Indian refiners are projected to report lower margins in the second quarter ended September 2008 as falling crude oil prices have eroded the value of the companies’ inventories, analysts say.
“The overall situation is not very good. Refinery margins across the world are falling as demand for fuel weakens,” said a senior official in the petroleum ministry.
Four analysts tracking the three state-owned refiners told Business Standard that the refinery margins — the difference between the purchase cost of crude oil and selling price of petroleum products — would fall by between $2 and $6 per barrel. It takes anywhere from 20 to 30 days to take delivery of crude oil after an order is placed. Thus, a sharp fall in prices — as it happened in the September quarter — would adversely affect refiners who had purchased it. When the prices are only increasing, refiners would earn more like it happened in the three months up to June 2008.
Indian Oil Corporation (IOC), which controls around 40 per cent of the country’s refinery capacity, is projected to report $5-6 per barrel refinery margins during the quarter, down from $16.8 per barrel in the June quarter and $8.44 per barrel in the September quarter last year. Bharat Petroleum Corporation and Hindustan Petroleum Corporation are projected to see their refinery margins dip to $2-3 per barrel.
Reliance Industries, which controls around 22 per cent of the country’s refining capacity, reported refinery margins of $13.7 per barrel in the quarter ended September 2008, compared with over $15 per barrel in the June quarter.
The lower refinery margins are primarily due to a loss in the value of the oil and oil products these companies hold. The companies bought oil at record-high prices but the value of this oil fell by the time it reached the Indian shores as global oil prices have dipped by over 50 per cent in the last three months.
Moreover, the difference in prices between oil and petroleum products has narrowed. While oil prices have fallen around 50 per cent in the last three months, the prices of petroleum products have dipped by 55-60 per cent. This is another reason for the fall in margins.