Oil firms may cut fuel prices on low demand
Brent crude plunged 6.95% to $78.89 a barrel on Friday from $84.78 10 days ago. It was the lowest since October 1. A downslide in international oil prices on demand concerns due to the resurgence of Covid-19 cases in Europe could prompt domestic fuel retailers to slash petrol and diesel rates as benchmark Brent crude plunged sharply by 6.95% to $78.89 a barrel on Friday from the month’s peak of $84.78 a barrel 10 days ago, two people aware of the development said on Sunday. Brent has slipped below $80 a barrel, the lowest since October 1, which makes a case for reducing petrol and diesel rates in India, they said requesting anonymity. “State-run oil companies have made some small gains on automobile fuels, but they preferred to watch the declining trend in global oil markets for some time before passing on the benefit to the consumer, as in the past a fall in fuel rates was quickly followed by a spike,” the first person said. Immediate price reductions would, however, be small, under Re 1 per litre, he added. Retail prices of petrol and diesel in India, which are linked with daily fluctuations of their international benchmarks, have been frozen since November 4, the day the Union government sharply reduced central levies on petrol and diesel by ₹5 a litre and ₹10, respectively. Petrol price has been stable for the last 18 days at ₹103.97 per litre and diesel at ₹86.67 in Delhi. “For the first time in many months international oil prices fell due to demand concerns, else producers were keeping oil prices artificially high by restricting supplies, ignoring pleas of major consumers such as the US and India,” the second person said. India is the third largest consumer of crude oil after the US and China. Experts say state-run oil marketing companies should scrupulously pass on the benefit of falling global oil prices to the consumer as theoretically they revise petrol and diesel rates daily. SC Sharma, former officer on special duty at the erstwhile Planning Commission, said: “Since oil prices have fallen and are likely to fall in future, India’s oil marketing companies are also required to pass on the benefit of reduced oil prices on a day-to-day basis in order to give relief to consumers as also to facilitate high economic growth.” Recently, India saw an unprecedented spike in automobile fuel rates. One of the reasons for high domestic fuel rates is production curbs by the oil cartel, the Organisation of the Petroleum Exporting Countries (OPEC). After international oil prices plunged below $20 due to global lockdowns to contain the Covid-19 pandemic in April 2020, OPEC and its allies, including Russia (together known as OPEC+) on April 12 last year announced an unprecedented 9.7 million barrel per day cut in oil output.
Clean energy push to slash petrol, diesel demand growth: Crisil
Demand growth in petrol and diesel combined will likely decline to 1.5% per annum this decade, compared with 4.9% in the last, because of increasing blending of ethanol with petrol, and rising use of vehicles powered by compressed natural gas (CNG) and electricity. The trend will also be persuaded by policy interventions as India targets net-zero emissions by 2070. Taking a cue, oil refiners would be altering their production mix in favour of alternatives such as petrochemicals, which should also support their profitability. Hetal Gandhi, director, Crisil Research said, “A more than three-fold increase in the number of CNG stations, advancing of the ethanol blending target, and a significant decline in EV battery prices are likely to slash demand growth in petrol to 1% this decade from 8.4% in the last. Demand for diesel will be relatively resilient (2% annual growth compared with 3.9% earlier) because of non-exposure to the two-wheeler segment, where the shift to EVs is sharper, and the presence of a significant proportion of freight vehicles where CNG and EV penetration would be limited. Consequently, the proportion of diesel and petrol in the consumption of petroleum products will reduce to 44% by 2030 from 50% now.” Yet refiners are expected to add 37 million metric tonne per annum of capacity (15% over the existing base) by fiscal 2025, investing over ₹1500 billion. Almost all these facilities would be capable of producing both transportation fuel and petrochemicals. Consumption of petrochemicals is expected to grow at a healthy 8-10% in India. Per-capita consumption of polymers is expected to double to 18-20 kg by fiscal 2030. That, and slowing demand for transportation fuel would result in the share of petrochemicals in petroleum products rising to 17% by fiscal 2030 from 7% in fiscal 2020. This healthy demand growth for petrochemicals will partly offset the decline in India’s crude oil demand growth to 3.5% this decade from 4.5% in the last. This flexibility of diversification would lend stability to refiner margins. Their profitability, and those of oil marketing companies (OMCs) has been on the mend with margins gradually rebounding to pre-pandemic levels. Despite the lower demand growth for petrol and diesel, the credit profiles of refiners and OMCs will remain stable over the near-to-medium term, indicates a CRISIL Ratings analysis of public sector refineries and OMCs, which have 65% share of refining capacity and 90% share of oil marketing in India.
Saudi Aramco Heeds New Investments in India, After Reliance Calls Off Deal
The Saudi Arabian public petroleum and natural gas Saudi Aramco (SE:2222) has announced that it has no plans of giving up on investment opportunities in India, as the latter houses ‘tremendous growth opportunities over the long term, stated the oil giant on Sunday. The global oil major has confirmed that it will continue looking for and evaluating new and existing business opportunities with potential partners in the country. In August 2019, Reliance Industries (NS:RELI) Limited and Saudi Aramco signed a non-binding letter of intent, as per which the former would sell 20% of its stake in its O2C business to the latter for raising USD 15 billion, for debt reduction. However, the deal between the two corporations was called off by RIL on Friday, which led to the conglomerate’s shares tanking almost 4% on Monday, closing the session 4.4% lower at Rs 2,363.75 apiece. Despite not going ahead with the 2019 deal, Aramco and Reliance have stated that the Mukesh Ambani-led company will continue to remain Aramco’s preferred partner in India and has plans to partner with the firm in future, without adding much to this development.