For oil refiners, the Covid-19 pandemic would result in an inventory loss of over Rs 25,000 crore in the January-March quarter because of a 70 per cent fall in crude oil prices.

Further, a likely plunge in gross refining margins (GRMs) is also expected in the first quarter (April-June) of fiscal 2021 on account of demand destruction, a Crisil study said.

Crude prices nosedived from an average $55 per barrel in February to $33 in March and closed at around $20 at the end of March as demand slumped because of the pandemic. On April 12, 2020, OPEC managed to strike a deal for a record production cut of 9.7 million barrel per day.

Yet, crude prices have hovered at low levels because of the pandemic-induced plunge in demand across the globe, it added.

This has caught refiners on the wrong foot. As things stand, India has a total refining capacity of about 250 million tonnes per annum, with refiners having an inventory of 20-50 days of crude on average to avoid disruption in operations.

The rapid fall in crude oil prices would mean inventory loss of $10-20 per barrel. The final figure of inventory loss will be estimated based on the price prevailing on March 31, 2020.

The loss would be offset once crude oil prices rebound, but the process would take time given that the slump in global demand is expected to prolong.

“Inventory losses would be more for refineries located away from the coast because they have to stock crude oil for longer periods. That means refiners will have to borrow more working capital to fund the crude oil purchased earlier,” Sachin Gupta, Senior Director at Crisil Ratings, said.

In addition to these inventory losses, the operating performance of refiners is expected to remain weak in the first quarter of fiscal 2021 due to lower volumes and GRMs.

With demand culled further because of the extension of nationwide lockdown up to May 3, 2020, refineries are staring at halving utilisation during the April-June quarter.

Refineries that replenished their inventory are staring at significant curtailment of operations. Our base-case assumes the lockdown lasting for up to 1.5 months, with another 1 to 1.5 months required to resume and stabilise operations.

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