Crude oil prices: rise to have adverse effect on domestic GRMs: analysts

The recent rise in the international crude oil prices in January, 2011 is expected to have adverse affect on domestic Gross Refinery Margins (GRMs), analysts said. With petroleum product prices for January 2011 are already fixed by Ogra, industry GRMs during the ongoing month is likely to be around -$2.3 per barrel compared to -$1.2 per barrel in December 2010. However, the company wise GRMs may differ due to variation in product mix.
"Going forward in February 2011, with international crude oil prices expected to remain stable, we expect domestic GRMs to pull back into green, as domestic petroleum prices are expected to increase by 6-8 percent inline with rise of international petroleum prices", Nauman Khan, an analyst at Topline Securities said.
On the back of relatively chilly winters this time, particularly in Eurozone, the benchmark crude oil prices ie WTI and Brent saw their prices remained above $90/bbl for most of the January 2011. Interestingly, Arab Light crude oil prices rose sharply than the other crudes to average $93.7/bbl, up 4.4 percent MoM. This has adversely affected industry GRMs since product prices have already been fixed during January 2011 by Ogra, he added.
The company wise GRMs indicates that only ATRL margins to remain green, while GRMs of NRL and PRL, which were negative during December 2010 are expected to remain in red zone in January as well. As per our estimates, GRMs of ATRL is expected to be around $1.5 per barrel, while NRL and PRL likely to be -$3.5 per barrel and -$5 per barrels. This includes the impact of removal of incidental charges recently done by the government.
Assuming crude oil prices to remain at current levels during February, 2011, we believe GRMs to turn green in February 2011. Under prevailing conventions, the monthly domestic petroleum prices are set based on average international oil product prices during the preceding month. Hence with prices of diesel and HSFO, two major refinery products, are up 4.0-5.0 percent on month-on-month basis during January 2010, this would improve GRMs in February 2011.
However, the company wise GRMs analysis shows that ATRL would be the major beneficiary in February with GRMs of $5.0 per barrel, while PRL's GRMs are expected to remain in negative zone. NRL and PRL GRMs are expected at $0.5/bbl and -$0.6/bbl, respectively.