Wednesday September 28, 2022

Gross margins of refineries decline sharply on crude crash

July 15, 2022

KARACHI: Gross refinery margins (GRMs) were squeezed sharply after international prices of crude oil and petroleum products dropped down substantially in recent days, industry officials said on Thursday.

The margins are the difference between crude price and prices of petroleum products like diesel and petrol and these widened massively after global prices of oil peaked to all time high in the global market.

Officials said margins on petrol were almost negligible now whereas margins on diesel dropped to $20 per barrel from $50 per barrel in June this year.

They said global oil prices have been falling in anticipation of negative economic growth, in case oil prices kept surging in the global market, which might cut the demand of oil products.

Last week, crude oil prices dropped to $103 per barrel, whereas petrol price also dropped to $111 per barrel, with margins between crude and diesel also narrowing down substantially, they added.

GRMs have remained high for June 2022, reaching approximately $26 per barrel and resulting in an average of $25 per barrel for the fourth quarter (April-June) of FY22.

Refinery margins have risen sharply to $37/barrel in May 2022 against $24/barrel in April of this year.

Out of 100 barrels of crude oil, 96 percent is utilised for refining products whereas 4 percent was lost in the manufacturing. Refinery sector looks poised to outperform, as GRMs for May 2022 clocked in at approximately $37/barrel versus average of $24/7/barrel in April 2022.

The high GRMs of the refineries are attributed to widening spreads on high speed diesel and furnace oil.

Attock Refinery’s GRMs were calculated at $31/barrel in May against $21/barrel in April. For National Refinery Limited, gross margins arrived at $38/barrel in May against $23/barrel in the preceding month year.

Pakistan Refinery Limited GRMs turned out to be $37/barrel in May. Due to high GRMs, government last month sought comments from the oil sector on GRMs, which have been on the higher side in the last three months.

The Petroleum Division had asked the refiners to give their input after it was reported that GRMs have surged in the recent months after it was reported that margins on high speed diesel (HSD) and petrol should be capped to reduce their prices for the end consumers.

Industry analysts were expecting that refiners, particularly simple ones that don’t have equipment to upgrade fuel oil into more valuable products, would have to cut runs.

Even margins for complex refineries have turned negative in recent days, with some crude grades in falling global prices becoming uneconomic to process, they added.