Sluggish demand and fall in crude prices have left refiners with low refining margins. And this isn’t about to change anytime soon.
Fall in petroleum product prices higher than that in crude prices
MUMBAI: Sluggish demand and fall in crude prices have left refiners with low refining margins. And this isn’t about to change anytime soon.
The Singapore crude, usually the benchmark for complex refineries, has posted an average negative refining margin of $7.17 a barrel in November so far. Analysts don’t see any revival coming soon.
An analyst with a leading domestic brokerage said, “Refining margins will be negative or marginally positive for the next 12-18 months as there are no signs of demand picking up.” He said refining margins don’t depend as much on the price of crude as they do on the demand for petroleum products, which has fallen significantly globally.
While Singapore crude price fell by 61% in the last four months, from $143.51 a barrel on July 14 to $54.70 per barrel on November 11, the average price of the end product dipped 63% to $49.49 from $134.79 a barrel in this period.
An official from state-owned refiner Bharat Petroleum Corporation Ltd (BPCL) said, “For H1FY09, our refining margin was positive but from October, it is expected to be negative.” Between April and September, BPCL’s Kochi refinery operated at an average margin of $11.3 a barrel while its Mumbai refinery posted $5.5 per barrel.
This is because except diesel and ATF, all petroleum products are being sold below crude prices in India. So margins of all state-owned refiners are bound to decline as the fall in product prices has been sharper than in crude price. Vinay Nair, an analyst with domestic brokerage Khandwala Securities Ltd (KSL), said, “Reliance, for example, will not see a major fall in margins as it has a complex refinery that can process low-quality crude. But a sustained fall in crude prices will dent its margins too.”
Worsening the situation is huge refining capacity additions across the globe, especially in Asia. The overcapacity thus built will dip product prices further.
A July 2008 International Energy Agency report on the global oil industry said up to 8.8 million barrels a day of crude distillation capacity would be added between 2008 and 2013. This is greater than the projected upstream crude capacity additions.
The report said growth would be centred on the Middle East, China and other Asian nations, which would add a combined 6 million barrels per day. About 2.6 million barrels per day will come before 2009-end and the rest in 2012-13. But if negative refining margins sustain, expansion plans may be hit, said Nair. One project being reviewed is Yanbu refinery, whose construction has been postponed by joint venture partners Saudi Aramco and ConocoPhillips from December to Q2FY09 due to “new economic dynamics”.
m_promit@dnaindia.net
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