Volatility in oil prices, uncertain petroleum demand impacting Indian OMCs

Volatility in crude oil prices and an uncertain petroleum demand over the last fortnight have come as a cause for concern for oil marketing companies (OMCs).

“Crude prices had rallied 25 per cent on Thursday after Saudi Arabia called an ‘urgent meeting’ of the OPEC+ alliance and other producers to negotiate an output cut deal. NYMEX front-month crude settled at $25.32 per barrel, up $5.01,” S&P Platts noted in a report on Friday.

US President Donald Trump had on Thursday indicated a production cut agreement of 10 million barrel per day to 15 million barrel per day. “Despite the sudden jump in crude price on Thursday, after Trump’s tweets, oil prices are expected to remain depressed, which works fine for OMCs,” said Debasish Mishra, partner at consultancy Deloitte Touche Tohmatsu.

An output cut, at best, will put a floor to the falling crude prices, but it may not stabilise demand-supply dynamics.

“Demand is falling at a faster rate,” said an analyst with a domestic brokerage firm. Executives from OMCs have raised similar worries. So far, Indian Oil Corporation (IOC) has already slashed refinery throughput by up to 30 per cent. Bharat Petroleum Corporation (BPCL) has cut throughput by 20 per cent. Both moves are to align with the falling product demand in the country’s market.

Executives said if the April 15 deadline for the nationwide lockdown is extended, refineries may need to take steeper cuts.

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