A split is looming in India’s refining sector as private refiners tap into cheap Russian crude and boost export profits, just as domestically-focused state refiners are squeezed by high oil costs and Government capped domestic fuel prices.
While many Western buyers are shunning Russian crude in response to its invasion of Ukraine, private Indian refiners such as Reliance and Nayara have been among the biggest buyers this year of discounted Russian supplies.
They are raking in big profits by cutting domestic sales and aggressively increasing fuel exports, including to European buyers, who are now boycotting Russian energy imports.
By contrast, state refiners are much smaller buyers of Russian crude as they largely buy oil under annual forward supply agreements. They face potential losses in the June quarter, industry sources say, as they grapple with rising global crude costs and control over retail fuel prices that have been unchanged since early April. to curb the spiral of inflation.
India has bought around 62.5 million barrels of Russian oil since Moscow invaded Ukraine on February 24 – more than three times as much as the same period in 2021 – more than half for refiners private Reliance Industries and Nayara Energy, according to data from Refinitiv Eikon.
In turn, private refiners helped boost India’s total fuel exports by 15% in the first five months of 2022 compared to the same period in 2021, according to data firm Kpler.
PRIVATE CUT LOCAL SALES
To cope with the surge in fuel exports, private refiners reduced their market share of domestic fuel sales to 7% in April from 10% in the fiscal year to March 2022, a report said. Indian state refining source.
State refiners have had to increase their domestic sales but are suffering losses of more than Rs 20 per liter on the sale of diesel and Rs 17 per liter on gasoline, said a second official from one of the refiners of state.
In light of such different operating environments, brokerage firm ICICI Securities downgraded its rating on IOC, the nation’s leading state fuel refiner and retailer, to “hold back” from “buy,” and introduced Reliance as an idea for alternative action.
“This is the golden age of refining margins for refiners. But in India, negative state refiner trade margins are offsetting gains in refining business,” said Ehsan Ul Haq, an analyst at Refinitiv.
State refiners are also losing more than 200 rupees on each cylinder of cooking gas, the state refining official added.
“The more we sell in the Indian market, the more we lose,” the second source said.
Reliance, operator of the world’s largest refining complex in Jamnagar, western India, recently postponed its refinery maintenance plan, bought “arbitrage” barrels in the international crude oil market and boosted fuel exports, he said last month.
“RIL remains well positioned to benefit from continued rising refining margins given its high complexity, high diesel yield and high export rate,” Citi said in a recent report.
Private refiners have priced their fuels at a higher rate relative to their state peers and cut supply to their pumps, several Reliance and Nayara Energy dealers said, leading customers to turn to the service stations of state retailers.
“We are making refining margins of over $30 a barrel processing Russian oil and making huge profits from refined fuel exports,” said an official at one of the private refiners.
Reliance did not respond to an email from Reuters seeking comment.
Nayara Energy, in an emailed statement, said it was maintaining fuel supplies to its dealers and acknowledged a “nominal” increase in its retail prices for the long-term interest of the business.
BITE THE BALL
A source from the Oil Ministry said state retailers – which control more than half of India’s 5 million barrels per day refining capacity – made a profit in the March quarter due to inventory gains and earnings from other businesses, but results will be badly hit in the June quarter.
“They (public fuel retailers) have to bite the bullet and meet domestic demand, while private refiners print money getting oil at discounted rates and make huge gains exporting diesel to countries like Europe,” Haq said.
Indian fuel vendors have also recently passed on tax cuts to consumers, including on fuel produced before the cuts took effect, further squeezing their profits, a third refining official said.
“Our main objective is to meet the country’s demand while striving to make a profit because we are publicly listed companies, so it is a difficult task for us,” said a fourth retailer manager. state fuel.
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