Refining margins of state-run oil marketing companies fall this fiscal

Mangalore Refinery and Petrochemicals Ltd, a public sector enterprise under the Union petroleum ministry and a subsidiary of Oil and Natural Gas Corp. Ltd (ONGC), reported the biggest fall in its refining margins, which declined 80.17% to $2.56 per barrel during the April-September period from $12.91 in the same period last fiscal.

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The GRM of Chennai Petroleum Corp. Ltd, a group company of state-run Indian Oil Corp. Ltd (IOCL) fell 71.66% to $2.93 per barrel from $10.34 in the same one-year period, showed the reported titled Monthly Ready Reckoner for November.

Although domestic demand for petroleum products has been robust, the global trend has been subdued due to weak demand by China, the second largest importer of crude oil, leading to a fall in crack spreads globally.

Crack spreads are the price difference between a barrel of crude oil and the petroleum products refined from it.

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“Globally, crack spreads have declined due to muted demand amid new refineries coming online and this has also impacted the GRM of Indian refineries. Indian product pricing is based on global prices, which is import parity price (IPP) for products other than petrol and diesel, while for the transportation fuels—petrol and diesel—trade parity price is used, which is a mix of IPP and EPP (export price parity). Although there is some uptick in demand due to seasonal heating requirement globally, lower crack spreads are here to stay going ahead,” said Prashant Vasisht, senior vice president and co-group head, corporate ratings, Icra.

He also noted that narrowing of discounts on oil imported from Russia has also resulted in the decline in refining margins. “The discounts on oil from Russia have declined to $2.5-4 a barrel. This has also impacted the refining margins over last year,” he added.

Discounts have been declining over the past two years and stood at around $6 per barrel last December. The discounts were as high as $30 per barrel in 2022 after Russia invaded Ukraine, and the West restricted its procurement of Russian oil. On the back of the dicounts, Russia has emerged as the top source of oil for India, supplying around 35% of the overall imports.

State-run IOCL’s gross refining margin in April-September stood at $4.08 per barrel, compared with $13.12 a barrel during the corresponding period of the last fiscal, registering a decline of 68.90%. The other public sector oil majors Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) reported a GRM of $6.12 and $4.03, lower by 60.31% and 61.58%, respectively.

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Also, Numaligarh Refinery Ltd, a subsidiary of state-run Oil India Ltd, witnessed a 52.78% decline in its GRM to $14.47 during the April-September period, compared to $30.65 a barrel in the same period of last fiscal (FY24).

Both production and consumption of petroleum products by the state-run OMCs and refiners have increased this fiscal. Production was 184.7 million tonnes as of November, nearly 2% higher than 181.2 million tonnes produced in the year-ago period.

Consumption during April-November 2024, at 157.5 million tonnes, marked a growth of 3.4% compared to the volume of 152.4 million tonnes during the same period of the previous year.

“This growth was led by 1.8% growth in HSD (high-speed diesel), 7.7% growth in MS (motor spirit or petrol), 10.0% growth in ATF (aviation turbine fuel), 6.9% growth in LPG (liquefied petroleum gas), 14.7% in lubes,1.2% in naphtha consumption besides growth in FO/LSHS (furnace oil/low-sulphur heavy stock) and LDO (light diesel oil) during the period. The consumption of petroleum products for the month of Nov-2024 recorded a growth of 9.3% with a volume of 20.4 MMT compared to the same period of the previous year,” the monthly report said.