Current transportation fuel demand at 30%-40% of normal: R Ramachandran, director, refineries at BPCL

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Published: April 15, 2020 12:15 AM

The current transportation fuel demand is around 30%-40% of the normal demand, with ATF demand almost near zero.

Indian refineries have term contracts with all the major national oil suppliers in the Middle East for this year. Indian refineries have term contracts with all the major national oil suppliers in the Middle East for this year.

Oil industry experts expect crude price to remain low with appropriate discounts available to buyers. Typically, crudes which were available at a premium to the benchmarks are now available at discounts of $3 to $5 per barrel, said R Ramachandran, director, refineries at Bharat Petroleum (BPCL), in an interview with Vikas Srivastava. Edited excerpts:

With the OPEC+ countries taking a 9.7 million barrel supply cut, what can be the impact on crude prices and Indian refiners going ahead, in terms of fresh term contracts?
While the cuts announced by OPEC+ will improve the balance between the supply and demand, the surpluses existing world over, including the Indian markets, coupled with the lockdown worldwide, is expected to keep crude prices low in the short term. Indian refineries have term contracts with all the major national oil suppliers in the Middle East for this year. Typically, 60-80% of our imported crude requirement is tied up in term contracts.

Are the discounts offered by suppliers going to reduce following the cuts announced by OPEC+?
Oil industry experts predict the prices to remain low with appropriate discounts as it is visible in the markets projection of a contango situation in crude oil pricing. (Contango pricing is a situation where the future prices are projected higher than the current, allowing for purchases to be made now for a future sale at higher prices). The discounts over the benchmark prices vary from crude to crude. Typically crudes which used to be available at a premium to the benchmarks are now available at discounts of $3 to $5 per barrel.

Since the cut will be implemented from May 1, can we expect the price fall to stabilise and countries to create strategic reserves in the interim?
Lower prices will lead to major oil consumers trying to fill up their strategic reserves. India is also filling up its strategic crude caverns at Vizag, Mangalore and Padur with oil from Saudi Arabia and Abu Dhabi.

How do you see Q1FY21 for refiners and OMCs? Will there be any improvement in sales of diesel, jet fuel and gasoline?
The current transportation fuel demand is around 30%-40% of the normal demand, with ATF demand almost near zero. A few flights carrying cargo or emergency flights to bring back nationals home consume a small quantity of jet fuel. It is expected that with the gradual relaxation and enhanced essential services, truck movements, demand will pick up. We need to wait and watch as the situation unfolds.

Is there any possibility of partial refinery shutdown by BPCL or other refineries due to extension of lockdown?
Most of the refineries in India are operating at around 50%-60% of the capacity. The sustenance of the refinery runs are dependent on the materialisation of the demands as we move forward in the lockdown period. There are limitations on the throughput at which each plant in a refinery can operate. Capacities below this level will require units to stop. Currently, we are trying to manage the operations above this level.

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