Gross refining margins down 20 per cent

Analyst fears oil prices will further cut margins.

KARACHI: Average gross refining margins (GRMs) have dropped 20 per cent to around $4.5 to $5 per barrel so far in the second quarter of fiscal 2011 due to an increase in furnace oil margin, according to Topline Securities.

GRM is the spread between crude oil price and product price which determines the profitability after taking into account the product mix of local refineries.

It is feared that margins could further fall to $3.5 to $4 per barrel if crude oil prices stay around $85 per barrel. Inventory gains could slightly offset the decline in margins, said Topline Securities analyst Farhan Mahmood.

Something to cheer about is the fact that the current margin of $4.5 to $5 per barrel is still at par with the average margins of $4-4.5 per barrel during the last four quarters, said Mahmood in the company research report.

Published in The Express Tribune, November 5^th, 2010.