EFFECTS OF CORONA VIRUS: A MIX FOR INDIAN OIL AND GAS COMPANIES

The benchmark Brent crude oil price fell nearly 20% to $ 55.14 a barrel in a month, largely due to investor concerns over eroding oil demand, with China being one of the biggest consumers as an importer of crude oil. He is exposed to the growing death and spread of the virus.

As the global oil and gas industry continues to struggle to decipher the overall impact of the coronavirus on oil demand and economic growth, Indian refineries are walking a tightrope to compensate for inventory losses, less than product cracks and use lower freight and spot rates.

The benchmark Brent crude oil price fell nearly 20% to $ 55.14 a barrel in a month, largely due to investor concerns over eroding oil demand, with China being one of the biggest consumers as an importer of crude oil. He is exposed to the growing death and spread of the virus.

Refining margins have been very low, while the overall market forecasted an increase in product cracks at IMO 2020. So far, however, things have not worked as expected. Second, the fuel cracks have collapsed and demand has certainly increased due to the coronavirus epidemic and the general impact in China, whether it be gasoline, diesel or turbine fuel. ‘Aviation’, said K Ravichandran, vice-president of ICRA Senior.

He also said global demand for gasoline, diesel, and aviation turbine fuel is expected to decline, which will affect Indian refineries as the three transportation fuels together account for the majority of refinery output.

“The overall demand for transportation fuel will deteriorate and the three transportation fuels will account for 60-70% of the output of Indian refineries. So far, it has been negative from the refinery’s perspective,” said -he declares. Ravichandran.

While Indian refineries’ gross margins are likely to come under pressure in the short term, they are expected to decline due to the drop in spot oil prices and lower freight rates.

Economy times quotes “The overall demand for transportation fuel will deteriorate and the three transportation fuels will account for 60-70% of the output of Indian refineries. So far, it has been negative from the refinery’s perspective,” said -he declares. Ravichandran.

While Indian refineries’ gross margins are likely to come under pressure in the short term, they are expected to decline due to the drop in spot oil prices and lower freight rates.

In addition, oil sellers in Asia are looking for alternative buyers for fast freight deliveries, demand in China is decreasing and the premium for such charges is decreasing. According to Mr. K. Surana, President of Hindustan Petroleum (HPCL), the premiums for the cash oil royalties have decreased and the premium for the transportation tariffs has also decreased.

“The company will explore all the options that will benefit it. The current scenario can help us link raw material charges to lower premiums or discounts if possible. A lower freight rate also helps us. There is a significant drop in rates for VLCC and Suezmax, but the drop in VLCC compared to Suezmax is more pronounced, “He said during a media interaction on Wednesday.

According to S&P Global Platts Analytics, the freight rate of the very large crude oil companies on the USGC-China route has fallen by 35% since January 21 and has fallen to a level that has not been reached since mid -September.

While falling world oil prices will cause inventory losses for Indian oil refineries, falling prices will also ease overall costs. They also quoted that “The correction in oil prices will certainly bring some relief in energy and fuel costs for refineries. It will be a positive relief. Working capital will also be a good sign for refineries.” Shipping costs are also reduced. Said Ravichandran.

While domestic fuel prices have failed in response to falling global oil prices, HPCL President Surana has pointed out that domestic fuel prices may continue to fall as oil prices fall and product cracks keep you at the same levels.

“National fuel prices are based on international prices. If oil prices drop unless the product cracks increase significantly, fuel prices will decrease, but there may be delays. The exchange rate and the dynamics of supply and demand between zones also play a role in determining national fuel prices. So it will be a combination of these factors, “said Surana during the interaction.

S & P Global Platts estimates that a reduction of 1 million barrels/day (mbpd) in OPEC production in the second quarter is a reasonable expectation. A drop of 1 Mbps / day would correspond to a drop of 600,000 beds from here since Saudi Arabia is already producing 400,000 BPD below its authorized quota, “said Shin Kim, head of procurement and production analysis at S & P Global Platts.

The worst-case scenario from the research company shows a drop of 4 Mbits / day in oil demand in February, while the best scenario shows a drop of 1.5 Mbits / day.

Sustained disruption of economic activity in China would also have an impact worldwide, given the size and interdependence of the Chinese economy. This disruption would, in turn, have a significant impact on world oil markets.

The death toll in China has exceeded 563 and infected more than 28,000 people in the country. The blockade entered the third week and spread to around 50 million people in Hubei province.