Indian Oil Deficit for the First Time in 4 Years

Indian Oil (IOC) has incurred huge losses in any quarter for the first time in the last four years. The company suffered a huge loss of Rs 5,185 crore in the March quarter.
Indian Oil Deficit for the First Time in 4 Years
Image Credit: Bloomberquint

Petroleum marketing company Indian Oil (IOC) has incurred huge losses in any quarter for the first time in the last four years due to the Corona crisis.

Image Credit: The Financial Express
Image Credit: The Financial Express

The company suffered a huge loss of Rs 5,185 crore in March quarter due to a steep decline in petroleum demand due to costly crude oil and lockdown in the country.

Why did the deficit happen?

Image Credit: DNA India
Image Credit: DNA India

One of the major reasons for the loss is that due to the steep fall in the prices of crude oil, the company incurred heavy losses in the inventory (raw material stored). The company had stored about 45 days with crude oil. After this, the prices of crude oil fell significantly. That is, when the company sent this crude oil for processing petroleum products, by then the crude oil had become very cheap and the company had to bear the loss on it.

Apart from this, due to the lockdown on March 25, the demand for oil had come to absolutely ground in the March quarter for about a week. The company has incurred a huge loss of Rs 5,185 crore in the fourth i.e. March quarter of the financial year 2019-20. In the same quarter of last year, the company had a profit of Rs 6,099 crore.

Image Credit: Pragativadi
Image Credit: Pragativadi

Significantly, in the March quarter, the price of Brent crude oil fell by about 65.6 per cent. Finance head of the company Sandeep Kumar Gupta said that from January to March, Indian Oil incurred an inventory loss of Rs 14,692 crore, as compared to Rs 2,655 crore in the same period last year.

What is inventory loss?

Image Credit: QStock Inventory
Image Credit: QStock Inventory

Actually, about 80 per cent crude oil has to be imported into India and it takes 20 to 23 days for this oil to reach the refinery from the country of import. During this time the market price of crude oil changes considerably. Suppose a company called for oil at $ 40 per barrel and by the time it reached the refinery, crude oil was reduced to $ 30 per barrel. So it has a loss of $ 10 per barrel because they have to decide the market rate of oil based on the current market price. IOC's oil gross refinery margin in the March quarter was minus $ 9.64 per barrel, a loss of $ 9.64 per barrel, compared to a profit of $ 4.09 per barrel a year earlier.

Even after the lockdown opens, the demand for oil will still take a long time to grow as before. However, Indian Oil Chairman Sanjeev Singh says that the demand for fuel is improving very fast and by the end of this year, the demand will be absolutely normal.

Currently, 90 per cent of the company's refinery capacity is being used and by the end of July, the company is expecting to increase it to 100 per cent. Significantly, Indian Oil accounts for one-third of the country's total refinery capacity of 5 million barrels per day.

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