English
Arabic
Chinese (Simplified)
Gujarati
Hindi
Marathi
Persian
MUMBAI: As states begin a phased exit from an over two-month lockdown, to contain the spread of covid-19, and economic activity resumes, refiners are beginning to ramp up production anticipating a pick up in fuel demand.
Demand for fuel had nearly disappeared as the lockdown had led to a fall in vehicular traffic, with movement of people restricted, factory shutdowns, and suspension of flights and trains.
As a result, major refiners–Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation, Nayara Energy and Reliance Industries–suffered revenue losses.
“We see increase in demand for not only petrol and diesel but also other products. The relaxation in lockdown will make other industries open up and their downstream activities will also increase. We also see demand picking up in rural areas,” said a senior official with a state-run oil marketing company, on the condition of anonymity.
In May, petrol sales declined 36.5% year-on-year to 1.59 million tonne and diesel sales fell 31% to 4.81 million tonne. But it was better than April, when petrol sales declined 61% and diesel sales dropped 57%.
Over the last two months, refineries operated at 40% of their capacity due to the decline in demand even as operating expenses increased on per barrel basis, impacting profitability. India can refine 250 million tonne per year, and refiners here stock up crude for 20-50 days on an average to avoid disruptions.
Lower demand also left refiners saddled with unsold inventory at their depots and fuel retail outlets. Indian refiners store petroleum fuels at over 300 depots and terminals and aviation fuel at around 250 stations.
According to rating agency Icra, the downstream sector’s inventory losses in fourth quarter of FY20 are estimated at ₹330 billion.Besides, refining margins on high-yield products like aviation turbine fuel, motor spirit and high-speed diesel have fell and are expected to remain weak over the near term.
“Profitability will be impacted by lower gross refining margins as the outbreak of covid-19 has impacted demand adversely thereby weighing on crack spreads of which spreads of Gasoline and aviation turbine fuel have been impacted the most,” said Icra in a note dated 12 May.
Refining companies, however, will resume operations in a staggered manner at the refineries. “Though we resume operations now, we may take over a month to stablise the same. We would still be calling staff in shifts and following the hygiene protocol as we do not want to risk the health of our staff,” said a senior official from a refining company.