More exposure to diesel behind less fall in Indian refining margins.
Indian refiners have posted higher refining margins than their international counterparts in the December quarter but future outlook remains subdued, say analysts.
Refining margin is the difference in prices of crude oil and finished products.
According to BP’s Global Indicator Margin (GIM) — a generic number derived from third-party data using regional crudes and product yields — the December 2008 basis for G.IM stood at $5.20 per barrel.
In comparison, gross refining margins for US’ Gulf Coast and Midwest refiners stood at $2.49 per barrel and $2.53 per barrel, respectively.
Singapore refining margins averaged $5.16 per barrel during the period, while the Mediterranean margins stood at $5.04 per barrel.
| NUMBER GAME | |
| Refining margin for Dec '08 |
$/bbl |
| US Gulf Coast | 2.49 |
| US Mid West | 2.53 |
| Mediterranean | 5.04 |
| Singapore | 5.16 |
| GIM | 5.20 |
“Indian refining margins have fallen relatively less compared with international refining margins as Indian refineries are more exposed to diesel whereas international refineries focus on production of light distillates like naphtha and gasoline which are high in demand in western countries. Due to the economic slowdown, the demand for the latter products has suffered,” said Vinay Nair, research analyst, Khandwala Securities.
In India, diesel accounts for 40-45 per cent of the total production of distillates.
On a year-on-year basis, however, Indian refining margins fell 38 per cent to an average of around $6.5 per barrel for calendar year 2008 against $10.6 per barrel in the year prior to that.
During the year, Singapore refining margins, the benchmark for Asian refineries, fell 20 per cent to an average of around $6.1 per barrel for calendar year 2008 against $7.6 per barrel during 2007.
Crude oil prices, after hitting $147 a barrel in July this year, have dropped to around $45 a barrel, as major oil-consuming nations have slipped into an economic slowdown.
“Asian refineries produce more naphtha and a slowdown in manufacturing has impacted their margins. Indian refineries, which concentrate on diesel, have reported better refining margins as compared with their Asian counterparts,” said a Mumbai-based analyst.
Among Indian refineries, Reliance Industries reported a gross refining margin of $10 a barrel during the October-December quarter. Singapore refining margins stood at $3.6 per barrel during the quarter as compared with $5.8 per barrel in the corresponding quarter of the last fiscal.
During the nine-month period from April to December, Bharat Petroleum Corporation Ltd posted a gross refining margin of $4.25 a barrel for its Mumbai refinery and $6.91 a barrel for its Kochi refinery, against $4.41 and $6.58 during the corresponding period of the last fiscal, respectively.
During the nine-month period, refining margins of India’s largest refining and marketing company, Indian Oil Corporation, averaged around $3.37 per barrel, compared with $9.10 per barrel for the corresponding period last year.
Asian refiners earned a significant premium on sale of diesel. In December 2008, diesel’s spread over crude oil was around $15-20 per barrel, which analysts said had come down to $8 per barrel. This would result in narrowing of refining margins of Asian refiners, they said.
“Most of the profits of Asian refineries came from sale of diesel. But with diesel prices falling, the advantage that they had could reduce,” added Nair.
Though refining margins will not get negative, they will certainly remain under pressure in the next couple of quarters, industry experts say.
