Exhausting product tankage not a cause of concern yet, say oil executives

Topics oil market | oil | Coronavirus

Demand for petrol and diesel is now at one-third because of the 21-day national lockdown leading to fast filling of product tankage facilities across the country despite production cuts. Oil executives, however, said any extension of the lockdown period — which ends on April 14 — will not be a cause for concern.

Executives add there is room for a further 20 per cent cut at the refinery level, before tankage capacity becomes an issue and running refineries becomes unviable. There is no official word yet on whether the nationwide lockdown will be extended beyond April 14.

“At an industry level, all refineries are running at different throughput levels. There is headroom at the current regulated throughputs, even if there is an extension,” said M K Surana, chairman and managing director, Hindustan Petroleum Corporation (HPCL).

Of the three state-run refiners, Indian Oil Corporation has so far announced up to 30 per cent cut in refinery output. Bharat Petroleum Corporation (BPCL) has cut output by 20 per cent. HPCL has cut output only at its Mumbai refinery and is running at 80 per cent.  “We are a net buyer of products. We have room if demand comes down. We buy from others, depending on the need,” said Surana.

Most refineries have the lowest viable capacity level, beyond which companies do not prefer to operate it; some peg that ballpark figure at 50 per cent.

Oil executives point out that the demand for petrol and diesel is now at 30 per cent of the average demand seen prior to Covid-19 outbreak and its impact on demand.

According to the Petroleum Planning & Analysis Cell data, India’s diesel consumption was at 7.15 million tonnes (mt); petrol demand stood at 2.51 mt for February.

R Ramchandran, director (refineries), BPCL, said it is possible to continue running refineries at the current levels even if the lockdown is extended. However, he sounds a note of caution. “If the product supply moves at the current rate (even after the lockdown extension), we should be able to manage. If it takes a further hit, other selective options need to be considered,” he said.

Oil executives said the relaxation in allowing movement of non-essential items has helped in perking up demand.

Ramchandran added, “Demand for aviation turbine fuel is almost zero; petrol and diesel have seen a fall. Further trends will depend on the supply logistics. Marketing tankages are getting filled up; four days average is available.”

The rate of availability will depends on the way products are sold, said Ramchandran. “Various options are available to regulate refining capacities. One needs to see how demand moves.”

Tankage is not a concern solely related to India or finished petroleum products. Globally, oil producers and exporters are finding options to store crude as demand dips. An S&P Global Platts report released on Friday quoted an immediate reduction of 10 million barrels a day is required to “prevent inventories globally from reaching tank tops,” said Edward Morse, Citi Group’s global head of commodities research. The report further said some super tankers are being booked to store crude oil for up to three years — potentially the longest ever duration for floating storage.

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