But higher crude oil prices, coupled with a cap on retail fuel prices, will affect profits of government oil marketing companies
Gross refining margins (GRMs) and petrochemical cracks have also begun to improve, benefiting companies like Reliance Industries, standalone refineries like MRPL, and petchem producer Gail. The significant decline in demand, coupled with new capacities, had led to a sharp decline GRMs in the past. “However, from here on, utilisation (refinery) will improve gradually, as new capacities will be lower than the demand growth of about 1.8 million bpd per year,” said Edelweiss Securities’ analysts in a report. They expect GRMs to increase from $6.1 per barrel in CY09 to $10.6 per barrel in CY11 and say that GRMs have already picked up in CY10.
Overall, analysts are bullish on private players like Reliance Industries and Cairn India. Additionally, higher crude oil prices will aid demand for oil exploration and production services provided by companies like Aban Offshore, Dolphin Offshore and Shiv-Vani. These will gain from the higher demand (improved utilisation of equipment) and later, improved rentals (on equipment). A case in point is Aban. The company, which has seen the number of idle rigs decline in recent past, signed a rig-deployment contract on Thursday that will earn the company $159 million (Rs 700 crore) in revenues over four years starting end-2010.
Contrarily, higher crude oil prices, coupled with a cap on retail fuel prices, will affect profits of government-owned oil marketing companies (OMCs), while ONGC and Oil India could end up sharing a higher subsidy burden. Given the current situation, Centrum’s analysts estimate underrecoveries to rise to Rs 80,000 crore by the end of 2010-11 from an estimated Rs 46,000 crore in 2009-10. An appreciating rupee and improving GRMs are positives for OMCs, but not enough to offset the pressure from underrecoveries. Not surprisingly, stocks of ONGC and Oil India have fallen as against a rise in Sensex since end-February 2010.