Indian state oil refiners see strong margins for 2018

Above, the Bharat Petroleum refinery complex in Mumbai. Indian refiners hope global prices will remain sub-$70 per barrel as world oil production rises while new refining capacity does not keep the pace. (Reuters)
Updated 22 February 2018
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Indian state oil refiners see strong margins for 2018

MUMBAI/NEW DELHI: India state refiners expect their profit margins to hold their strength this year as demand growth accelerates for fuel products amid a record $93 billion spent on infrastructure and stable crude oil prices, company executives and analysts said.
India’s sales of cars and especially motorbikes are forecast to rise rapidly, even as the development of a Delhi-Mumbai industrial corridor drives consumption of the country’s primary fuel products, diesel and gasoline.
The infrastructure program for fiscal 2018/19 calls for more than 80,000 kilometers in new highways to better connect rural areas with urban hubs. Roads and other construction require oil-based products such as tar and plastic piping, and fuel to move materials by truck and rail.
“They (these projects) will have a cascading effect on fuel demand,” said R. Ramachandran, director of refineries at Bharat Petroleum, adding that this would be reflected directly in strong refining margins.
India’s annual fuel demand, made up mainly of diesel and gasoline, is expected to grow 7.5 percent in 2018, according to a report by BMI Research, a unit of Fitch. That compares with 5.4 percent last year, according to government data.
“Strong fundamentals and rising demand in India indicate that refining margins will remain strong in the near term, for at least six months,” Ramachandran said.
Refining margins also rely heavily on global crude oil prices, currently around $65 a barrel, and on the status of world inventories of refined products.
Indian refiners hope global prices will remain sub-$70 per barrel as world oil production rises while new refining capacity doesn’t keep the pace.
The International Energy Agency said this month it expects oil production to slightly outpace demand this year, especially thanks to still rising output in the United States.
M. K. Surana, head of Hindustan Petroleum Corp, said he expected international crude prices between $62 and $68 a barrel this year, as long as there are no geopolitical crises or technical disturbances like damage to the Forties pipeline.
Based on that expectation, India’s refiners should see refining margins, also known as cracks, in the range of $7-$8 per barrel for all three state-owned refiners.
“Products demand continues to rally on better industrial performance and weather-related support ... Rising oil prices have done little to dampen the growth so far,” said Sri Paravaikkarasu, head of East of Suez Oil, at consultancy FGE.
FGE expects Singapore margins to hold around $6-$7 a barrels due to upcoming refinery maintenance and summer demand.
“The margins for Indian refiners will be slightly better ... as India prices its products on import parity basis,” she said.
Asia’s benchmark margins in the oil trading hub of Singapore currently stand around $7.20 per barrel.
Better refining margins for the state-owned refiners — and improved profit from selling retail fuel — will pump more cash into government coffers ahead of key elections this year and next for Prime Minister Narendra Modi, who needs money for his ambitious health care and infrastructure programs.
The cash inflow would come just ahead of eight state elections this year and national elections in 2019.
Healthy profits will also help the state-owned refiners to continue spending on expansion plans.
India aims to increase its refining capacity by 77 percent to about 8.8 million barrels per day (bpd) by 2030, which will cost dozens of billions of dollars.
State-run refiners Indian Oil, Hindustan Petroleum and Bharat Petroleum, that sell most of their output locally at prices linked to global rates, largely reported strong profits and margins for the October-December quarter.
While Indian gasoline and diesel prices are linked to global rates, during state or central elections private rivals say state-owned firms often do not increase retail selling rates — a risk to margins, analysts point out, only if crude prices suddenly spike.
“We expect margins to improve ... Cracks appear to be good,” said B. V. Rama Gopal, head of refineries at IOC.


Palestinians in financial crisis after Israel, US moves

Updated 22 March 2019
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Palestinians in financial crisis after Israel, US moves

  • A Ramallah-based economics professor said the Palestinian economy more generally, remain totally controlled by and reliant on Israel
  • Israeli-Palestinian peace efforts have been at a standstill since 2014

RAMALLAH, Palestinian Territories: The Palestinian Authority faces a suffocating financial crisis after deep US aid cuts and an Israeli move to withhold tax transfers, sparking fears for the stability of the West Bank.
The authority, headed by President Mahmud Abbas, announced a package of emergency measures on March 10, including halving the salaries of many civil servants.
The United States has cut more than $500 million in Palestinian aid in the last year, though only a fraction of that went directly to the PA.
The PA has decided to refuse what little US aid remains on offer for fear of civil suits under new legislation passed by Congress.
Israel has also announced it intends to deduct around $10 million a month in taxes it collects for the PA in a dispute over payments to the families of prisoners in Israeli jails.
In response, Abbas has refused to receive any funds at all, labelling the Israeli reductions theft.
That will leave his government with a monthly shortfall of around $190 million for the length of the crisis.
The money makes up more than 50 percent of the PA’s monthly revenues, with other funds coming from local taxes and foreign aid.

While the impact of the cuts is still being assessed, analysts fear it could affect the stability of the occupied West Bank.
“If the economic situation remains so difficult and the PA is unable to pay salaries and provide services, in addition to continuing (Israeli) settlement expansion it will lead to an explosion,” political analyst Jihad Harb said.
Abbas cut off relations with the US administration after President Donald Trump declared the disputed city of Jerusalem Israel’s capital in December 2017.
The right-wing Israeli government, strongly backed by the US, has since sought to squeeze Abbas.
After a deadly anti-Israeli attack last month, Prime Minister Benjamin Netanyahu said he would withhold $138 million (123 million euros) in Palestinian revenues over the course of a year.
Israel collects around $190 million a month in customs duties levied on goods destined for Palestinian markets that transit through its ports, and then transfers the money to the PA.
Israel said the amount it intended to withhold was equal to what is paid by the PA to the families of prisoners, or prisoners themselves, jailed for attacks on Israelis last year.
Many Palestinians view prisoners and those killed while carrying out attacks as heroes of the fight against Israeli occupation.
Israel says the payments encourage further violence.
Abbas recently accused Netanyahu’s government of causing a “crippling economic crisis in the Palestinian Authority.”
The PA also said in January it would refuse all further US government aid for fear of lawsuits under new US legislation targeting alleged support for “terrorism.”

Finance Minister Shukri Bishara announced earlier this month he had been forced to “adopt an emergency budget that includes restricted austerity measures.”
Government employees paid over 2,000 shekels ($555) will receive only half their salaries until further notice.
Prisoner payments would continue in full, Bishara added.
Nasser Abdel Karim, a Ramallah-based economics professor, told AFP the PA, and the Palestinian economy more generally, remain totally controlled by and reliant on Israel.
The PA undertook similar financial measures in 2012 when Israel withheld taxes over Palestinian efforts to gain international recognition at the United Nations.
Abdel Karim said such crises are “repeated and disappear according to the development of the relationship between the Palestinian Authority and Israel or the countries that support (the PA).”
Israel occupied the Gaza Strip and the West Bank, including now annexed east Jerusalem in the Six-Day War of 1967 and Abbas’s government has only limited autonomy in West Bank towns and cities.
“The problem is the lack of cash,” economic journalist Jafar Sadaqa told AFP.
He said that while the PA had faced financial crises before, “this time is different because it comes as a cumulative result of political decisions taken by the United States.”
Abbas appointed longtime ally Mohammad Shtayyeh as prime minister on March 10 to head a new government to oversee the crisis.
Abdel Karim believes the crisis could worsen after an Israeli general election next month “if a more right-wing Israeli government wins.”
Netanyahu’s outgoing government is already regarded as the most right-wing in Israel’s history but on April 9 parties even further to the right have a realistic chance of winning seats in parliament for the first time.
Israeli-Palestinian peace efforts have been at a standstill since 2014, when a drive for a deal by the administration of President Barack Obama collapsed in the face of persistent Israeli settlement expansion in the West Bank.