DOMESTIC oil marketing companies (OMCs) — which together posted a net loss of over Rs 12,800 crore in the September ’08 quarter, despite almost equal amount of discounts from ONGC and over Rs 20,500 crore of oil bonds — are set to gain as crude prices have crashed. Crude prices on NYMEX fell to $61 per barrel by the second week of November — more than 58% lower than the high of $145 reached in July.
Prices have declined despite the 1.5 million barrels per day production cut implemented by Opec from November 1, as the economic downturn is reducing demand for transport fuels. Demand for gasoline in the US (the largest consumer of petroleum) has fallen so steeply, that refiners are now incurring losses on sale of gasoline. At the same time, China, which posted highest incremental growth in petroleum consumption last year, is also witnessing a slowdown in fuel demand.
In the September ’08 quarter, OMCs posted negative refining margins due to inventory losses, while the marketing operations continued to lose money. However, with crude prices stabilising around $60, the story will be different in the next quarter. The Indian basket of crude oil that represents a blend of Dubai/Oman and Brent crude in a 62:38 proportion, has fallen to the $56 level, at which, marketing of transport fuel has become profitable. With crude prices stabilising, OMCs’ refining operations will also turn positive. Given that government support and upstream discounts continue to take care of losses on LPG and kerosene, BPCL, HPCL and IOC can once again post healthy profits.
Prices have declined despite the 1.5 million barrels per day production cut implemented by Opec from November 1, as the economic downturn is reducing demand for transport fuels. Demand for gasoline in the US (the largest consumer of petroleum) has fallen so steeply, that refiners are now incurring losses on sale of gasoline. At the same time, China, which posted highest incremental growth in petroleum consumption last year, is also witnessing a slowdown in fuel demand.
In the September ’08 quarter, OMCs posted negative refining margins due to inventory losses, while the marketing operations continued to lose money. However, with crude prices stabilising around $60, the story will be different in the next quarter. The Indian basket of crude oil that represents a blend of Dubai/Oman and Brent crude in a 62:38 proportion, has fallen to the $56 level, at which, marketing of transport fuel has become profitable. With crude prices stabilising, OMCs’ refining operations will also turn positive. Given that government support and upstream discounts continue to take care of losses on LPG and kerosene, BPCL, HPCL and IOC can once again post healthy profits.
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