Facing low margins, demand yorker, refiners cut back run charge

INDIAN OIL refiners are dealing with a double whammy: together with low refining margins, poor demand for petroleum merchandise is resulting in a build-up in inventories — forcing refiners to scale back run charges.
Sources stated Indian Oil Corporation had decreased its refinery run charge to 88 per cent, whereas privatisation-bound Bharat Petroleum Corporation Ltd reduce its run charge to 85 per cent of its refining capability. Run charge is the proportion of crude processed by a refinery relative to its whole processing capability.
“ A build-up of bitumen, sulphur and diesel stocks have forced refineries to reduce production,” stated an official, including refiners had been in search of choices to evacuate rising shares of petroleum merchandise and talking with giant consumers, such because the Indian Railways, to pre-pone purchases.
The nation’s general demand for petroleum merchandise has fallen on account of the second Covid surge. Official information launched on Wednesday confirmed that demand for petrol fell 13 per cent in April, whereas that for diesel dropped 7.5 per cent, in comparison with the earlier month. Overall demand for petroleum merchandise fell 9.4 per cent month-on-month. Year-on-year demand for petroleum merchandise was up 82 per cent, nonetheless, as final April noticed stricter restrictions on motion.

Sources advised The Indian Express that refiners anticipated run charges may come all the way down to 70-75 per cent if journey curbs are prolonged additional, however they didn’t anticipate run charges to fall to the lows of 60-65 per cent seen within the lockdown of 2020.
Experts stated decrease refinery throughput would hit profitability for refiners who’re dealing with low refining margins. “Operating costs per unit of production surge during times when refining runs are low, as the fixed costs of running refineries are not distributed over the total production capacity,” stated Vivekanand Subbaraman, analyst at Ambit Capital, including that low refining margins would additionally hit the profitability of Indian refiners.

Analysts added oil advertising and marketing firms (OMCs) had been more likely to elevate petrol and diesel costs additional. This was as a result of rising petrol by Rs 1.7 per litre and diesel by Rs 1.9 per litre this month had not but accounted for the rise in worldwide crude oil costs, which OMCs had not handed on for a 65-day interval ending May 3 as a variety of states went to elections.