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Latest refining margins

Mar 4, 2008

Gross refining margin (GRM) is the difference between the total value of petroleum products produced by an oil refinery and the price of the input i.e. crude oil. It is the single most important driver in valuing a refining company. The movement of GRMs internationally has a direct bearing on Indian refiners, as oil refining is a global industry. GRMs for 9mFY08 are at historical highs for Indian refiners. In this article, we shall take a look at how the GRMs have moved worldwide of late.

Weakening GRMs
Change in GRMs (9-Jan to 6-Feb)
NW Europe Brent (Cracking) -54% US West Coast ANS (Cracking) -129%
  Urals (Cracking) -53%   Kern (Cracking) 859%
  Brent (Hydroskimming) 37%   Oman (Cracking) -61%
  Urals (Hydroskimming) 27%   Kern (Coking) 79%
Mediterranean Es Sider (Cracking) 3% Singapore Dubai (Hydroskimming) 18%
  Urals (Cracking) -15%   Tapis (Hydroskimming) 3%
  Es Sider (Hydroskimming) -4%   Dubai (Hydrocracking) -24%
  Urals (Hydroskimming) -1%   Tapis (Hydrocracking) 23%
US Gulf Coast Bonny (Cracking) -33% China Cabinda (Hydroskimming) -65%
  Brent (Cracking) -28%   Daqing (Hydroskimming) -19%
  LLS (Cracking) -46%   Dubai (Hydroskimming) -34%
  Mars (Cracking) -84%   Daqing (Hydrocracking) -37%
  Mars (Coking) 57%   Dubai (Hydrocracking) -297%
  Maya (Coking) 37%      
Average excluding USWC Kern -27%
Source: International Energy Agency

The table indicates the worldwide weakening of GRMs during January. Prices of petroleum products have under performed the buoyant crude prices, leading to weak refining margins. Refined product prices fell more than crude because of:

  1. Rising gasoline stocks in the US

  2. Warmer weather in Europe and Japan

  3. Decline in Chinese import needs from December/January highs as fuel shortages eased and pre-Lunar New Year buying ceased.

Impact on Indian refiners
The Indian basket of crude is a mix of Dubai crude and Brent. Hence, from the perspective of Indian refiners, the GRMs pertaining to these crudes have the greatest significance. We can observe weakening GRMs in these crudes, especially for the complex refineries with cracking units. Hence, we factor in a mild reduction in GRMs in our projections for Indian refiners in the immediate future.

Change in average GRMs for week ending
Center Crude 16-Jan 23-Jan 30-Jan 6-Feb
NW Europe Brent (Cracking) -38% 22% -12% -31%
Brent (Hydroskimming) 16% -15% 14% 22%
Singapore Dubai (Hydroskimming) -5% -19% 6% 45%
Dubai (Hydrocracking) 54% 42% -15% -59%

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