BPCL looking at buying rare grades of crude oil at cheaper rates

MUMBAI: State-run fuel retailer BPCL is looking at buying rare grades of crude oil at cheaper rates as the epidemic in China has hurt refiners in the northern neighbor and reduced their purchases. Still, the company is treading carefully as it faces risks by way of inventory losses.

“The Corona virus has disrupted crude oil prices and China has rejected a lot of crude oil in the last 3-4 months, and there is a significant availability of crude,” said R. Ramachandran, head of refineries at the motor-fuel company. “Some of the crude oil categories that we didn't find attractive earlier are appearing to be attractive now.”

According to market players, Chinese refiners may have reduced output by at least 1.5 million- 2.5 million barrels a day, with a prolonged lockdown in the aftermath of the epidemic hurting fuel demand in the world’s second-biggest economy. The company hopes to benefit from the fall in crude oil prices to around $56 a barrel now from $ 67 in December, and hopes to snap up some distressed cargoes. But the management remains cautious on the inventory losses.

“All over the world inventory losses will happen. What fundamentally we need to be looking at is how we manage our inventory at the end of the year. We will be very carefully monitoring how we can have a balance between making sure crude is available for processing and not buying extra crude when the prices are low,” Ramachandran said.

Ramachandran said that the company is on track to switch to Euro-VI emission compliant fuels ahead of the government’s deadline of April 1. BPCL has spent Rs 7,000 crore to upgrade plants to produce the ultra-low sulphur fuel. Ramachandran said that while the retailer executed the plan as it realised it was needed to “stay in business”, the industry believes that fuel prices ought to be raised to absorb the investment cost.

“If we can charge an additional 70 paise, we can recover Rs 7,000 crore in 7-8 years. We are talking to the government but there is no decision yet,” he said.