Crude oil refiners stand to gain
BS Reporter Mumbai 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. |
|
|
|