Refineries ordered to convert 9% crude into kerosene - Views on News from Equitymaster

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  • Jan 28, 2000 - Refineries ordered to convert 9% crude into kerosene

Refineries ordered to convert 9% crude into kerosene

Jan 28, 2000

The oil co-ordination committee (OCC) has ordered refining companies to convert at least 9% of their crude production into kerosene. This spells further bad news for refining companies such as Bharat Petroleum, Hindustan Petroleum and Indian Oil Corporation. As it is refining margins are under pressure, since the crude prices have almost doubled to $ 27 a barrel while the petroleum product prices have not seen a proportionate rise.

Kerosene is among the five petroleum products under price control others being LPG, ATF, petrol and diesel. The local demand is over 11 million tonnes per annum.

The government’s problem is that it is far costlier (in terms of the import bill) to import petroleum products such as kerosene than to import crude. The refineries on the other hand feel that importing kerosene is better (in a scenario where they cannot raise the kerosene prices) rather than importing crude where they have to pay at the international rate.

Market View:
While refinery stocks such as HPCL and BPCL are considered quite cheap considering their retail marketing network, the current operational problems have forced analysts to put out a ‘Hold’ on these stocks.

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