India’s oil sector would take a hit of Rs16,000 crore by way of inventory losses in the third quarter of this fiscal despite a steep fall in under-recoveries following sharp fall in crude oil prices during the quarter, of which a substantial share will be borne by refiners, rating agency CRISIL said.
Crude oil prices fell by a third, and closed out 2014 at $55 per barrel in the September - December period. Because of this, prices of petroleum derivatives like polymers and chemicals also declined by around 30 percent, which leading to inventory losses for refiners, traders and manufacturers of downstream petroleum products as their raw material purchases would have been at higher prices.
For oil marketing companies, the losses are partly offset by higher profit margins from retail sales of petrol and diesel after deregulation of prices. Current prices reduce dependence on subsidy from the government as well as inventory costs for these firms. In turn, this will mean substantially lower working capital requirements leading to fewer short-term borrowings and ultimately lower interest cost.
Though, CRISIL said that the impact of inventory losses on chemical traders and downstream processors of crude oil, polymers and chemicals will depend on their product profiles, hedging policies, extent of inventory build-up, and strength of balance sheets.
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