Oil refining sector outlook subdued on higher under-recoveries: Icra

Rating agency Icra on Wednesday painted a subdued outlook for oil refiners in the near term due to global capacity additions outstripping demand growth.

 

"Demand growth of crude oil is expected to remain anaemic due to slow recovery of the euro zone besides slowdown in China and India though there are signs of a gradual global economic recovery," Icra said. 

 

"Therefore, we have a subdued outlook for the sector," it said. 

 

The agency expects oil marketing companies to close the current fiscal year with high gross under-recoveries on account of high crude prices and a weakness in the rupee against dollar in the earlier part of FY14.

 

It expects the gross under-recoveries to come down - though still remain high - in FY15 from FY14 levels due to the monthly rise in diesel prices and if the rupee were to remain stable at the current levels.

 

Going forward, international refining margins are expected to remain subdued in the medium term due to global refinery capacity additions outpacing demand growth, According to Icra's senior vice president, K Ravichandran.

 

Delays in commissioning of some proposed projects and closure of unviable refinery capacities may however translate to some upside in GRM levels over the medium term.