Underrecoveries for 16-31 July fortnight could rise from Rs 4.5 to Rs 5.5/litre.
After stumbling for a bit in June on global macro concerns and release of emergency oil supply by International Energy Agency (IEA), crude prices have recovered. During the July 1-15 fortnight, brent crude prices remained strong and averaged $116 a bbl up from $111 the previous fortnight. Given that there is no short-term solution to the ongoing crises in West Asia and North Africa, oil prices are expected to remain firm all through FY12.
According to reports in Downstream, Opec expects the growth of global oil demand to slow down slightly in 2012, as government stimulus programmes are winding down. Opec has projected a growth of 1.6 per cent for 2011, a downward revision of 0.02 percentage points from last month’s forecast. However, most of the demand for crude will come from India, China, West Asia and Latin America. IEA forecasts India’s fuel demand may rise 3.7 per cent in 2012.
Firm crude prices directly impact fortunes of India’s private and public oil companies in different ways. As oil prices climb higher after seeing some correction, some of the good work by the government will be undone, as auto-fuel under-recoveries for 16-31 July could rise from Rs 4.5 to Rs 5.5/litre, claim oil analysts. The breakeven for auto fuel Brent would be $98.5/bbl. The refining margin for July 1-15 stood at $8.2/bbl, which averaged $8.5 in the first quarter of FY12.
Estimates by Anand Rathi suggest diesel and petrol losses during the fortnight could be Rs 6.4 and Rs 1.2 a litre, respectively. “For the July 16-31 fortnight, auto-fuel breakeven is estimated at $98.5/bbl (petrol: $112; diesel: $95), vs $96.2 for the July 1-15 fortnight, and overall breakeven crude at $86.1 vs $84.3/bbl. Hence, at the present price of crude, FY12 under-recoveries could still be a record $1.2 trillion.”
However, refining margins for the fortnight has remained strong at $8.2/bbl due to strength in gasoline and middle-distillate cracks. The first quarter of FY12 refining margin stood at $8.5/bbl vs $7.4 in the fourth quarter of FY11. The Brent-Dubai spread for the July 1-15 fortnight, at $9.2/bbl. Analysts say this will benefit complex refiners.