Thinning refining margins due to low crude oil prices may hit Mukesh Ambani-led Reliance Industries? (RIL) financial performance in the third quarter of the current fiscal. The oil and gas major, which reported a net profit at Rs 3,882 crore in the third quarter of the previous fiscal, may post lower profits for the quarter ended December 31, 2008.
According to analysts tracking the oil and gas sector, the performance of RIL in the third quarter may well ride on their petrochemicals segment rather than oil refining division. Industry observers say that though even their petrochemical margins are under pressure due to high input costs, the pressure will not be as steep as their refining business.
Says Deepak Pareek from Angel Broking, ?In the second quarter of this fiscal, RIL had refining margins at $13.4 per barrel of crude oil, but this quarter, it could be only $9 per barrel since crude has touched an all time low at $39 a barrel recently.?
It may be recalled that RIL had shut its polypropylene plant in Jamnagar in October 2008 stating that the step was taken for carrying out maintenance work. ?Production of petrochemical products may have decreased due to the shutting of the plant, putting pressure on the revenues from the segment. Also, due to the softening of the crude oil prices, it has been a challenging business environment which also includes domestic inflation and weakening of the leading economies of the world,? said an analyst. Meanwhile, the shares of RIL had plunged at an all-time low at Rs 930 following the news of shutting of the Jamnagar plant on October 27, 2008 as compared to an all-time high of Rs 3,252.10 on January 15, 2008 on the Bombay Stock Exchange.
There have also been recent reports that RIL?s mark-to-market losses on oil price hedges has run into billions of dollars after its bets on crude futures went wrong last year, when prices first surged to a high of over $147 and then plunged to below $40 a barrel.
However, terming the news as ?malicious propaganda? RIL?s spokesperson in a press statement has said that the company was in the business of refining and its efforts were always towards maximising the gross refining margins. ?We engage in hedging transactions to protect our refining margins. But as a prudent business philosophy, we do not take speculative positions in either crude oil or any other commodities,? the spokesperson said.