While there’s a glut in the market for petroleum products, demand is sluggish.
Owing to a drop in demand, increased capacity and release of gas from the KG basin, gross refining margins (GRMs) of refiners in India are likely to be under pressure for the next two years.
Analysts say the trend is likely to be the same across the globe as a lot of capacity is coming up in the near future.
For most part of the current month, the benchmark Singapore GRM
has ruled in the negative, while the average GRM for the current quarter had been $3.34 per barrel. According to Bloomberg data, for the current quarter, the Singapore GRM scaled a maximum of $10.52 per barrel and saw a minimum of - $3.88.
“The first quarter (of the new fiscal year) is expected to be worse and the second quarter is likely to be very ugly,” said an analyst with an international brokerage house. He doesn’t see a revival in GRMs before 2010 and predicts an average margin of $3 per barrel for the next quarter. A glut in the market for petroleum products and sluggish demand are likely to exert pressure on the margins of refiners for all of the next year.
There is a huge capacity coming up in China and Vietnam, and Reliance Petroleum’s 550,000 barrels per day of Jamnagar refinery will also be running at full steam.
A July 2008 International Energy Agency report on the global oil sector said up to 8.8 million barrels per day of crude distillation capacity will be added to the refinery system between 2008 and 2013 - which is greater than projected upstream crude capacity additions.
The report said growth will be centred in the Middle East, China and other Asian countries. While some 2.6 million barrels per day from these regions is due on line before the end of 2009, the balance will be concentrated in 2012 and 2013.
An analyst with a domestic brokerage firm said on the condition of anonymity that supply will increase by 2.4 million barrels per day in 2009 and another 1.2 million barrels in 2010. While the capacity inflates, the IEA predicts de-growth in demand by around 1.3 million barrels per day by next year across the globe.
V Narasimhan, chief financial officer, Indian Oil Corporation, admitted that margins are likely to be low. “While the margins for gasoline had been negative, for diesel it was positive for the last few days. And they keep on varying at unpredictable intervals,” he said.
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