The lag reflection of decline in international crude oil on domestic prices bodes well for the refinery sector at least for short-term, said the analysts. The Gross Refinery Margins (GRMs), a vital gauge of refinery sector profitability which showed signs of improvement in April, is expected to further boost in May on account of recent decline in crude oil prices, they said. “We estimate domestic GRMs in May to improve to $2.5 per barrel up from $1.5 recorded last month, while fare much better from average $1 per barrel recorded in the preceding quarter,” said Nauman Khan of Topline Research. Similarly, the analyst said, also had improved the lube margins which had jumped above $40 per barrel in May, provided lube prices to remain same, which averaged around $30 per barrel in the third quarter of FY12. “Though falling crude oil prices may lead to inventory losses for few refineries which depend heavily on imports, higher GRMs wil more than compensate this risk we believe. Being wary on the enduring nature of GRMs improvement,” Khan said. The analyst said the international crude oil prices (Arab Light) in recent times on account of bearish sentiment emerging in the crude market fell from 2012 highest level of $126 per barrel to $111 per barrel. Only in May so far, the prices had average at $115 down 4 percent as compared to April. “This sharp decline in the crude oil prices is expected to bode well for the domestic refineries, whose product prices are based on preceding month product prices, under the prevalent pricing mechanism,” he added. Subsequently, he said the May GRMs was estimated to stand around $2.5 per barrel as against $1.5 per barrel in April. Khan said according to his estimates the ATRL GRMs would improve to $4-4.5 per barrel during May as against $2-2.5 per barrel in April and were up considerably from average $2.5 estimated in 3Q.
