Fall in international motor spirit price, refining margin

Pratim Ranjan Bose

Under-realisations

Senior officials

of the three PSUs said that though selling of petrol have lately become profitable, sales of all other products are resulting in heavy under-realisations. International price of motor spirit started falling in the beginning of this month and is now ruling at $63-64 a barrel roughly $14 lower.

Kolkata, Sept. 26

Notwithstanding the slide in crude prices, oil marketing companies may end the second quarter with higher loss from operations.

Though the companies have recently started booking profits due to fall in international motor spirit price, sharp fall in refining margin and an inventory loss during the month are expected to result in net losses. The problem is compounded due to higher under-realisation especially in LPG and kerosene during July-August. To add to the woes of the companies, furnace oil prices, which as such rule lower than crude prices, have witnessed a sharper fall than crude.

To book profits in the last quarter IOC, BPCL and HPCL are therefore pinning hopes on issue of oil bonds - worth roughly Rs 14,000 crore for both first and second quarter together. Of the total IOC expects to receive close to Rs 7,400 crore. HPCL and BPCL will receive over Rs 3,000 crore each.

BPCL and HPCL posted losses of Rs 677 crore and Rs 607 crore respectively in the first quarter. IndianOil registered a net profit of Rs 1,781 crore riding on Rs 3,225 crore proceeds from part-sell of stake in ONGC.

Senior officials of the three PSUs said that though selling of petrol have lately become profitable, sales of all other products are resulting in heavy under-realisations. International price of motor spirit (MS) started falling in the beginning of this month and is now ruling at $63-64 a barrel roughly $14 lower.

On the contrary, international diesel prices are ruling firm at $82 a barrel resulting into under-recovery of roughly Rs 4.5 per litre at home. International prices of LPG and SKO are ruling at $550-560 and $85-86 per bbl respectively, resulting under-recoveries to the tune of Rs 187 per cylinder and Rs 14 per litre in India. LPG and SKO prices went up by $20 and $8 per bbl respectively in July-August.

"We are expecting the total under-realisation to be marginally higher than the first quarter," an IOC official said. IOC registered Rs 4,898 crore under-realisation net of discounts during Q1.

The gross refining margin (GRM), which was $11.25 per bbl during the first quarter is expected to be in the region of $6 during the current quarter.

The refining margin was under pressure since August due to reduction in differential between crude and product prices and crashed to $4 per bbl in September due to a sharper fall in MS prices compared to fall in crude prices. BPCL sources said that while the under-realisation in MS/HSD was down by Rs 300 crore during the second quarter, the gain was fully offset by an identical rise in under-recovery in SKO and LPG. BPCL registered under-recoveries to the tune of Rs 2,200 crore in the first quarter. GRM which was $4.7 per barrel in Q1 is expected to be lower by $2 per bbl. HPCL recorded Rs 2,113 crore under-recovery in the first quarter.

(This article was published in the Business Line print edition dated September 27, 2006)
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