BPCL Cuts Refinery Throughput As Lockdowns Hit Fuel Demand

The oil refiner and marketer’s throughput stood at 8.39 million tonnes in the quarter ended March, annualised to 33 million tonnes. While demand was higher as the economy emerged from the first wave of the Covid-19 pandemic in the third and fourth quarters of the last financial year, it fell in May following the lockdowns.

“April was good, we were able to process 100% of the refinery capacity,” N Vijayagopal, director of finance at BPCL, said in an interaction with BloombergQuint. “However, in May, state-level lockdowns reduced the demand for products—motor spirit (petrol) and high-speed diesel (diesel).”

As a result, throughput has been restricted to 85-86% of BPCL’s design capacity in May. Although demand for both fuels was lesser by a third compared to a normal year, it’s higher than a year ago, when a nationwide lockdown was imposed, Vijayagopal said.

BPCL isn’t expecting demand to improve next month. “We don’t anticipate any major increase in demand in June because most of the major states have announced an extension of the lockdown,” he said.

The company had built up its inventory since the quarter ended December anticipating demand. Its inventory gain in the fourth quarter was Rs 1,800 crore.

"We had contracted crude anticipating that the Covid-19 pandemic has ended in the country and now we may not be able to process as much of it as we would like to,” Vijayagopal said. “However, crack spreads on motor spirit and high-speed diesel look better this quarter compared to the fourth quarter—which was the highest in FY21,” he said. “We’ll look at exports if it makes sense.”

The company doesn’t foresee any inventory losses if crude oil prices fall in the remaining quarter. During the first three months of the year, Brent crude price rose by nearly a fourth to $63.5 per barrel and is currently trading around $68.

Vijayagopal said BPCL “won’t have any issues” if oil prices decline in June, adding they won’t be having huge inventory gain going along in the first quarter of the ongoing fiscal.

Price Hikes To Continue

Oil marketers weren’t allowed to hike fuel prices ahead of the recent elections in five states. Since then, prices of motor spirit and high-speed diesel have risen by around Rs 3-4 per litre.

"We haven’t been able to recover the full cost of the products in some days of this quarter,” he said. “State tax rates are high at this stage, unless the tax rates are reduced, or the prices globally are coming down it will not be able to sustain at the current level of retail selling prices. So, we're doing this in a gradual manner to ensure the impact on the consumer is minimised.”

He said retail prices of fuel would rise unless global prices of crude fall or when tax rates are cut.

The company is confident it will be able to manage the uncertainty of price rises amid political events.

“We have gone through this phase,” he said. “Over years, we have ensured we have good marketing margins. In fact, the 2020-21 marketing margin was better than the 2019-20 marketing margin.”

Watch the full interaction here: