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Crude oil refiners stand to gain

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BS Reporter Mumbai
Last Updated : Feb 05 2013 | 12:50 AM IST
The sharp rise of the rupee against the dollar would add buoyancy to the bottom line of the government-owned crude oil refiners as they could buy more crude oil per rupee, analysts said.
 
"Our bottom line will also get a boost in the short term as our borrowings for buying crude oil will reduce," said a senior official with the Indian Oil Corporation (IOC), the country's largest refiner and marketer of petroleum products.
 
India imports almost 78 per cent of its crude oil requirements though it is a net exporter of petroleum products, which would be hit by a rising rupee. However, most of the government-owned oil companies, including IOC, have negligible exports as their brief is to serve the domestic market.
 
Every 1 per cent rise in the rupee causes an erosion of 25-50 basis points in the profit margins of exporters. The rupee has appreciated 3.6 per cent so far this month.
 
Most analysts, however, see the rupee appreciation as a short-term phenomenon, and project the rupee between 42.80 and 43.80 a dollar over the next 3-4 months.
 
"It is too early to say that this will be a good year for these companies," they said.
 
"Predictions on profit margins keep changing as the rupee continues to be volatile. For the current month, we expect the realisation from a barrel of crude oil to increase by 15-20 cents," a Mumbai-based analyst said. IOC recorded refining margins of $8.2 per barrel of crude oil last month.
 
Effect on private sector oil companies such as Reliance Industries could, however, be different.
 
Reliance, which imports almost all of its crude oil requirements for its 33 million tonne a year refinery at Jamnagar, says its more expensive exports of petroleum products will be balanced out by cheaper crude oil imports. "By converting our refinery to an export-oriented unit, we have naturally hedged against a fluctuating rupee and crude oil prices," a senior Reliance official said.
 
The company, which operates the world's third largest refinery in the world, exports almost 80 per cent of the petroleum products from its refinery.
 
Moreover, almost all crude oil imports are bought on long-term contracts which minimise the effects of a fluctuating rupee, the official explained.
 
"Our bottom line will not be affected in any significant way owing to a fluctuating rupee," he added. India's net crude oil import bill between April and February of the last financial year, grew 32.52 per cent to $52.67 billion. The crude oil import bill in 2005-06 stood at $34.09 billion. In 2004-05, the bill was $22.94 billion.

 
 

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First Published: Apr 18 2007 | 12:00 AM IST

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