An enormous crash in refining margins of diesel, petrol and ATF coinciding with a cool-off in crude oil costs from their peaks in June has diminished the super-profits of refiners, a report stated on Wednesday. In a shock transfer, the federal government on July 1 slapped export duties on petrol and ATF (Rs 6 per litre or USD 12 per barrel) and diesel (Rs 13 a lire or USD 26 a barrel) and imposed a windfall tax on home crude manufacturing (Rs 23,250 per tonne or USD 40 per bbl). At that point, the finance ministry said that the taxes shall be reviewed each fortnight.
“The last two weeks have seen a massive crash in the refining spreads (or margins) of diesel, gasoline (petrol) and aviation fuel (ATF) coinciding with a cool-off in crude prices from their respective peaks seen in June,” brokerage CLSA stated.”This questions the necessity for the continuation of the windfall tax imposed about two weeks again,” it stated.
Post windfall tax, the realised unfold on diesel and gasoline has fallen to close loss-making ranges whereas the realisation on aviation gasoline and crude have additionally gone under 15-year averages. “A USD 12 per barrel windfall tax on this takes the realised refining spread down to a near loss-making level of just USD 2 per barrel. Similarly, the diesel spread after the export tax of USD 26 per barrel would be a meagre USD 2 a barrel,” it stated.
At the time of asserting the windfall tax, authorities officers took pains to elucidate that this ought to be seen as a unprecedented step at a time of super-normal good points for oil corporations. They additionally promised a evaluate of this tax each 15-days.”With the subsequent evaluate due later this week, this sharp decline in international costs might power a re-think of this tax. One might not anticipate the federal government to react so rapidly however we see a superb likelihood for reduction in one of many subsequent evaluations this quarter if the worth stays round present ranges,” the brokerage stated.
If this tax stays for lengthy, it could hamper the positioning of India as an export and manufacturing-friendly regime.”We anticipate a rethink in one of many fortnightly evaluations promised by the federal government if present costs proceed,” it stated. “Any relaxation would be a big trigger for ONGC and Oil India and a relief for Reliance Industries Ltd.” While the windfall tax on home crude oil manufacturing was seen hitting state-owned Oil and Natural Gas Corporation’s (ONGC) earnings severely, the export duties might shave off as much as USD 12 per barrel in refining margins for Reliance, which had in current months ramped up gasoline exports to seize demand in Europe and elsewhere.
Stating that windfall tax evaluate was extra possible than anticipated, CLSA stated in the previous couple of days have seen a pretty big fall in crude costs in addition to spreads for key refined merchandise on the again of rising worries over oil demand as recession fears develop.The refining unfold for diesel has virtually halved from the USD 55-60 per barrel peak seen in June to USD 30 a barrel. Similarly, ATF spreads crashed from USD 50-55 per barrel to USD 25-30. Gasoline spreads have additionally been slashed from USD 30-35 per barrel final month to USD 10-15.
At the identical time, the Brent crude value has additionally cooled off by USD 15-20 per barrel up to now 2-3 weeks to about USD 100 per barrel.”This fast and dramatic fall in crude and product spreads considerably reduces any ‘super-normal’ good points for refiners in addition to crude oil producers and probably questions the necessity for the continuation of the windfall tax imposed about two weeks in the past,” the brokerage stated. Although the spot Brent crude and ATF spreads are nonetheless above 15-year averages, post-windfall tax implies realisations means under their 15-year averages.
Source: www.financialexpress.com”