Oil refiners step up operations as fuel demand rises after lockdown relaxation

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Published: May 12, 2020 3:30 AM

With the rising consumption of petrol and diesel, state-run refiners Indian Oil Corporation (IOCL) and Bharat Petroleum Corporation (BPCL) have ramped up capacity utilisation at their refineries.

Domestic consumption of petroleum products in April, when the lockdown to contain the spread of coronavirus was implemented throughout the month, fell 46% year-on-year (y-o-y) to 18.3 million tonne (MT).

With the rising consumption of petrol and diesel, state-run refiners Indian Oil Corporation (IOCL) and Bharat Petroleum Corporation (BPCL) have ramped up capacity utilisation at their refineries — the former to 60% and the latter to 52%.

According to sources, petrol and diesel usage in the first 10 days May was up 68% and 74%, respectively, from the corresponding period in April.

Domestic consumption of petroleum products in April, when the lockdown to contain the spread of coronavirus was implemented throughout the month, fell 46% year-on-year (y-o-y) to 18.3 million tonne (MT).

R Ramachandran, director (refineries) at BPCL, told FE: “Since the May 4 relaxation of lockdown, we have seen the demand for gasoline and high-speed diesel go up by 25% day-on-day as compared to the month of April. Our average refinery production now stands at 52% and is expected to go up with improvement in traffic and industrial activities. In fact, our Mumbai refinery is operating at 68%.

We believe the production will improve once the lockdown in major cities like Mumbai, Chennai, Bengaluru and Hyderabad opens up.” In the last week of March, when the country-wide lockdown had started, IOCL had regulated crude oil throughput at most of its refineries by 25% to 30%. Throughout the lockdown period, the company had kept all its refinery units on ‘hot standby’, which means the units were ready for scale-up whenever petrol and diesel demand picks up. The total refining capacity of the country is 249.4 MT per annum, and of this 69.2 MTPA is run by IOCL.

According to provisional data by the government’s petroleum planning and analysis cell (PPAC), diesel usage fell 54.8% y-o-y to 3.3 MT in April, while demand for the aviation turbine fuel (ATF) fell 91.3% to 56 thousand tonne in the month. Petrol consumption fell 60.4% to 973 thousand tonne in April. Consumption of bitumen, mostly used in road construction, dropped 72% y-o-y to 196 thousand tonne.

Rising consumption in May is a positive development for the Union government, which has sharply increased auto fuel taxes by Rs 10/litre on petrol and Rs 13/litre on diesel earlier this month. In mid-February, the Centre had hiked the tax on both these fuel by Rs 3/litre. To shore up more revenues, at least 14 states have also hiked their own taxes on fuels since the start of Covid-19 lockdown.

“As far as our gross refining margins are concerned, they are on the lines of global refineries and currently in negative. Due to demand destructions, our products are now being sold at a discount to the crude price at present,” Ramachandran said.

According to analysts, marketing margins for OMCs have gone down to the extent the duties have been increased by the government.

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