IOC to pay the highest price for diesel imports - Views on News from Equitymaster

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IOC to pay the highest price for diesel imports

Jan 10, 2000

The Indian Oil Corporation will have to pay the $ 4 per barrel (one barrel is equivalent to approx. 6 tonnes) premium above India’s formula price to secure supplies in its latest diesel tender. The Indian formula price is a mix (50/50 mix) of the Singapore and Middle–East spot free–on–board prices (FOB). India’s current urgent demand estimated at 200,000 tonnes per month earlier used to be around 5 times this size. However after the commissioning of the Reliance refinery at Jamnagar, a surplus developed in the domestic market.

IOC is India's largest company. It dominates the oil sector with a 45% refining capacity (almost 30.55 million tonnes) and a 55% market share. Its distribution network includes 6,779 petrol pumps, 3423 dealers and 2902 LPG distributors.

The only possible reason for imports of diesel at this juncture seems to be is the fact that domestic refineries have not been able to meet the local demand. The move is bound to put pressure on IOC’s margins after importing at the current prices since diesel prices are still regulated by the government. (Refining margins in India on an average are around $ 3 per barrel).

Market View:
IOC has been rated as a Hold primarily because of an impending equity dilution through a possible GDR issue. The company’s ownership of around 88% of the pipeline network and 54% of the marketing outlets of downstream oil companies gives it a huge competitive advantage.

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