Having stocked up considerable inventories of refined products over the last 15-20 days, and given the nearly 45-day gap between purchase and processing of crude oil at a time when prices have plunged, the three PSU oil refiners — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation – have reported combined inventory loss of a whopping R16,242 crore for the October-December quarter.
The hardest hit is IOC, with an inventory loss of R12,842 crore during the third quarter of FY15, while BPCL lost R1,600 crore and HPCL R1,800 crore. Consequently, IOC and HPCL reported net losses for the third quarter while BPCL made only marginal post-tax profit.
IOC, with refining a capacity of 65.7 million metric tonnes per annum (mtpa), equivalent to 30% of the country’s total refining capacity, saw its net loss widen to R2,636.80 crore during thequarter, from R 961.45 crore in the same period last year.
IOC chairman B Ashok attributed the poor financial result to the skyrocketing inventory loss. “We had an inventory loss of R12,842 crore during quarter as compared to a gain of R2,454 crore in the same period of last fiscal,” he said.
Global crude oil prices dropped over 60% since June 2014; it touched a six-year low of $45.2/barrel on January 12, and has since climbed to Friday’s price of $61.34.
India’s biggest refiner suffered losses even after its losses on selling domestic cooking gas and PDS kerosene were completely met by government and upstream companies. For an under-recovery of R8,994 crore in Q3FY15, government compensated R2,866 crore, while upstream companies shelled out another R6,116 crore.
Without the inventory losses, IOC would have reported gross refining margin (GRM) $10.47/barrel in the third quarter but ended up recording a negative GRM of $ 7.73/barrel, Ashok said.
BPCL managed a net profit of R551.16 crore for the December quarter, as it too received full compensation for losses on fuel sales. It has reported net loss of R1,088.94 crore in the corresponding period of previous fiscal. The government paid R1,079.92 crore in cash subsidy while upstream oil producers extended an assistance of R2,332.88 crore to make up for all the losses.
BPCL, with refining capacity of 27 mtpa, reported GRM of $ 1.54/barrel in Q3 FY15, against $1.76/barrel in third quarter of previous fiscal.
HPCL has reduced its net loss to R325.38 crore in October-December FY15 quarter from R1,734 crore in the year-ago period. During the same period, GRM dropped to $1.04/barrel against $2.94/barrel on year-on-year basis.
Inventory losses occur when the refiners which had purchased crude oil at higher prices are forced to sell the refined products at lower prices, due to their inability to pass on the high input costs in falling market.