PETROLEUM refiners posted record margins in the June 2008 quarter on inventory gains from rising crude oil prices. However, public sector oil marketing companies reeled under pressure from under-recoveries. The continuous rise in crude oil prices increases the value of inventories with refining companies. This, in turn, pushes up their gross refining margins (GRM).
During this quarter, the largest standalone player Reliance Industries posted a record high GRM of $15.7/barrel, which was below market expectations. Apparently, the company did not book any inventory gains. This eroded RIL’s operating margins. Although the company’s revenues rose 46%, the refining division posted only a 19% growth. Still, the company posted a 13% growth in profit for the quarter to Rs 4,110 crore. Essar Oil reported its two months of commercial operations in the quarter. The GRMs were impressive at $12.54 and the company went on to post a maiden profit of Rs 30 crore. The profits could have been higher, but for the Rs 320-crore write-off, thanks to the rupee depreciation. The state-owned standalone refiners MRPL and Chennai Petroleum (CPCL) also reported record high level of GRMs at $18.03 and $15.89, respectively. As a result, MRPL’s net profit zoomed 129% to Rs 845 crore, while CPCL’s net profit spurted 117% to Rs 703 crore. Indian Oil proved to be the only oil marketing company (OMC) that could post a net profit for the June quarter, with both BPCL and HPCL slipping deep into the red. Besides nearly doubling their refining margins, these OMCs enjoyed a strong support from upstream oil companies and the government. However, heavy under-recoveries ate into their profits. IOC’s GRMs stood at $16.81 per barrel against $9.02 in FY08. The discounts extended by upstream oil companies — ONGC, Oil India and Gail — jumped 156% to Rs 6,235 crore with the oil bonds at Rs 13,527 crore, over 70% of what it received for the entire FY08. Still the quarter’s net profits lost 72% on y-o-y basis to Rs 415 crore. The scenario was not much different for BPCL and HPCL. Their GRMs during the quarter were more than twice that of FY08.
The future doesn’t appear exciting for the refiners with the GRMs falling globally. With the crude oil prices coming off high levels, the benefit of inventory gains will not be there to boost the GRMs in the coming quarters. The demand for crude oil is also weakening in many countries while a number of new refineries will be coming on stream globally over next three years.
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