The Hindu Business Line : IOC’s refining margin may go up to $5 a barrel in Q1

Kolkata, June 18 Inventory gains due to rise in crude prices may push up the refining margin of IndianOil to nearly $5 a barrel during the first quarter of this fiscal, up by nearly $2 a barrel compared with the January-March 2009 quarter, according to sources.

The refining margin contributes nearly a third of IOC’s operating profits.

IOC is forced to maintain an unusually high 20-21 days’ inventory of crude oil primarily due to nearly 10 days of system inventory in the 10,000 km of pipeline and intermediate storage tanks catering to the refineries located in the hinterland. In addition, the company maintains inventory at the refinery end.

Cash flow

The increase in refining margin coupled with positive marketing margin on diesel (which accounts for nearly 40 per cent of all petroleum product sales) during April and May and lower interest provisioning may help the company to remain cash positive and negate much of the negative impact on account of under-recoveries in petrol, kerosene and domestic LPG during the April-June quarter.

IOC may post marketing losses on diesel in June.

Sources, however, did not confirm whether IOC would be able to remain in the black during the quarter without bond support.

Though under-recoveries of oil marketing companies are compensated through subsidy sharing by upstream companies as well as issue of oil bonds by the Union Government, dependence on the bonds had landed the marketing companies in a crippling liquidity crisis during the last fiscal, when oil prices were record high.

According to sources, interest provisioning is expected to be “substantially” lower in the April-June quarter compared to January-March on account of reduction in total borrowings from Rs 45,000 in March 2009; reduction in interests rates in the domestic market and strengthening of rupee and its due impact on repayment of foreign currency borrowings.

Rupee strengthened from as high as Rs 50.57 a dollar on April 1 to Rs 47.71 on June 15.

IOC had short-term foreign currency borrowings of $1.7 billion in February.

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