Icra see OMCs' under-recoveries at Rs 1.35 trillion this fiscal

According to the report, refining margins remain sensitive to rupee-dollar parity and crude oil prices

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Elevated crude prices and the rupee fall are likely to keep gross under-recoveries of oil marketing companies at higher levels near-term at around Rs 1,35,000 crore this fiscal, says a report.

"We expect the oil marketing companies would continue to suffer from high gross under-recoveries near-term due to high crude oil prices and significant depreciation of the rupee," rating agency Icra today said in a research report.

It expects the under-recoveries to be around Rs 1,35,000 crore for FY14 at the average rupee-dollar of 61 and average Indian basket crude oil price of $106/bbl, factoring in 50 paise/litre increase in diesel prices on a monthly basis.

The rating agency expects the outlook for refining to be subdued due to global capacity additions outpacing demand.

"Demand growth of crude oil is expected to remain anaemic on account of the Eurozone debt crisis and the slowdown in the economies of China and India," the report said.

The refining margins remain sensitive to rupee-dollar parity and crude oil prices, it said.

The gross refining margins of domestic refiners showed mixed trend in H1 of FY14 as against H1 of FY13 due to weaker spreads in H1 FY14 even as most refiners reported inventory gains due to stable crude prices during H1 as against a decline of about 10% in the same period last year.

"Going forward the outlook on international refining margins are expected to remain subdued in medium-term due to global refinery capacity additions outstripping demand growth," the report said.

He further said delays in commissioning of some of the proposed projects and closure of inviable refinery capacities may, however, translate to some upside in GRM levels over the medium term.