Oil refineries reduce processing

19 Aug 2020-New Delhi: The Covid-19 demand destruction has begun to hit Indian refiners with almost all entities further reducing crude processing or going in for unexpected maintenance shutdowns to remain afloat and protect margins.

Privatisation-bound Bharat Petroleum Corporation Ltd (BPCL) operated three of its refineries at about 70 per cent capacity in July and is expected to further cut down throughput in August, given that product demand has further fallen in August.

Indian Oil Corporation (IOC) has cut refinery throughput by 15-20 per cent in July and expected to enlarge the cut in August while Hindustan Petroleum Corporation Ltd, which made major gains on refinery output in April-June quarter, has fallen a little behind in July and has postponed expansion of refineries at Mumbai and Vizag to 2021 due to Covid-19 disruptions.

A few state-owned refiners are also going in for maintenance shutdown in the unlikely period of monsoons but the hope is that this would make them ready for demand pick up during the festive season.

Company sources said that IndianOil, Reliance Industries and BPCL, among others, are shutting units for maintenance this month that would further impact petroleum product production. But the build-up of inventory would, more or less, take care of market during the period of low demand.

The opening up of the economy, starting May, generated some interest for oil companies as it resulted in demand increasing to 85-90 per cent of pre-Covid times. This continued well into June before the demand again nose-dived.

“Refining margins are expected to remain weak for a few more months in light of the poor global demand growth,” brokerage house Motilal Oswal said in its report.

The brokerages have also estimated that loss of demand early in FY21 and continuing Covid-19 outbreak may dent refinery throughput by 15-20 per cent for the whole year.