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Facing low margins, demand yorker, refiners reduce run rate

The country’s overall demand for petroleum products has fallen as a result of the second Covid surge. Official data released on Wednesday showed that demand for petrol fell 13 per cent in April, while that for diesel dropped 7.5 per cent, compared to the previous month.

Written by Karunjit Singh | New Delhi |
May 13, 2021 3:01:33 am
Run rate is the proportion of crude processed by a refinery relative to its total processing capacity.

INDIAN OIL refiners are facing a double whammy: along with low refining margins, poor demand for petroleum products is leading to a build-up in inventories — forcing refiners to reduce run rates.

Sources said Indian Oil Corporation had reduced its refinery run rate to 88 per cent, while privatisation-bound Bharat Petroleum Corporation Ltd cut its run rate to 85 per cent of its refining capacity. Run rate is the proportion of crude processed by a refinery relative to its total processing capacity.

“ A build-up of bitumen, sulphur and diesel stocks have forced refineries to reduce production,” said an official, adding refiners were looking for options to evacuate rising stocks of petroleum products and speaking with large buyers, such as the Indian Railways, to pre-pone purchases.

The country’s overall demand for petroleum products has fallen as a result of the second Covid surge. Official data released on Wednesday showed that demand for petrol fell 13 per cent in April, while that for diesel dropped 7.5 per cent, compared to the previous month. Overall demand for petroleum products fell 9.4 per cent month-on-month. Year-on-year demand for petroleum products was up 82 per cent, however, as last April saw stricter restrictions on movement.

Sources told The Indian Express that refiners expected run rates might come down to 70-75 per cent if travel curbs are extended further, but they did not expect run rates to fall to the lows of 60-65 per cent seen in the lockdown of 2020.

Experts said lower refinery throughput would hit profitability for refiners who are facing 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,” said Vivekanand Subbaraman, analyst at Ambit Capital, adding that low refining margins would also hit the profitability of Indian refiners.

Analysts added oil marketing companies (OMCs) were likely to raise petrol and diesel prices further. This was because increasing petrol by Rs 1.7 per litre and diesel by Rs 1.9 per litre this month had not yet accounted for the rise in international crude oil prices, which OMCs had not passed on for a 65-day period ending May 3 as a number of states went to elections.

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