Refining margins to boost results

Reliance, state-run oil cos ride on record crude prices, halt in East Asian activities.

Refining companies like Reliance Industries and public sector players like Chennai Petroleum Corporation and Mangalore Refinery and Petrochemicals are expected to leverage strong gross refining margins (GRMs) to post robust results for the quarter ended December 31, 2007 (Q3FY08).

Margins improved as the Singapore refining margin, the regional benchmark, was estimated at $7.7 a barrel in the December 2007 quarter as compared with $3.9 a barrel in the corresponding period last year, a rise of nearly 99 per cent, according to analysts at domestic brokerage houses.

Th rise in refining margins is attributed to strong international petroleum product prices coupled with several refinery facilities in East Asia being shut for a few weeks due to maintenance work.

Reliance Industries' GRMs are estimated at $14-14.5 a barrel in Q3FY08 as against $ 11.7 a barrel in Q3FY07, thanks to its ability to process sour crude and capacity upgradation.

However, RIL's profits margins are expected to come under pressure in the last quarter of the financial year due to the surging price of naphtha, point out analysts.

Meanwhile, PSU refiners like MRPL are expected to report GRMs of $8-8.5 a barrel in the quarter as compared with $3.9 a barrel a year earlier, add analysts.

However, upstream players like Oil and Natural Gas Corporation (ONGC) are only partially expected to leverage record crude oil prices in Q3FY08, given its subsidy sharing burden for oil marketing companies and the near 12 per cent y-o-y appreciation of the rupee.

For ONGC, benchmark bonny light oil price rose 47 per cent year-on-year to $90.7 per barrel in the last quarter, but its gross realisations (prior to subsidy sharing with oil marketing companies) are expected to increase only 29 per cent, given the surging rupee.