Crude may stay range-bound this year, aid inventory gains: IOC

Domestic volumes sales for Indian Oil Corporation (IOC) have seen reasonable growth of a little over 5 percent this quarter and the company should be able to maintain 5-6 percent growth during FY17, says Chairman B Ashok. FY18 could be even better, Ashok feels as economic activities in India could pick up pace. 

In an interview to CNBC-TV18 after the company reported strong first quarter earnings, Ashok said he expects crude prices to remain range-bound this year and hopefully that will help IOC to at least limit inventory losses or even post inventory gains this year.

IOC posted inventory gain of around Rs 5,257 crore in the first quarter compared to a loss in Q4.

Ashok refrained from giving any full-year guidance on the gross refining margins. For Q1, GRM was around USD 9.98 per barrel.Below is the verbatim transcript of B Ashok's interview to Nisha Poddar on CNBC-TV18.Q: Let me start by asking you about your gross refining margins (GRMs), what are the core GRMs excluding the inventory gains for this quarter?A: Basically, our GRM for this quarter was USD 9.98, but if you back out the inventory effect, our GRM is USD 3.56 as against USD 5.99 during the same quarter last year, but this is including Paradip Refinery, which is not been stabilised, so if you back out the Paradip Refinery effect, then we have a GRM of USD 4.5 per barrel as against USD 5.99 for the last year.Essentially, GRMs have been under pressure because the cracks of both MS and HSD have not been too good, so if you look at Singapore pricing, the GRMs of Singapore there has been drop of almost USD 3, against which our drop has been USD 1.5, so we believe that we have been doing quite well considering the market scenario.Q: Why haven’t we really been seeing volumes growing in line with the expectation of the market in the current quarter?A: Volumes have grown during the current quarter as well, there have been the improvement in the sales numbers as well. If you look at the domestic sales, we have grown by about 5.3 percent, which is a reasonable growth I would say. Definitely we have not been under tremendous pressure in terms of the growth rate, we have been maintaining good growth and going forward I think with the economic growth also expected to be quite robust, we believe that this sort of growth should be sustained.Q: Talking about the future projects of the company what are the expected GRMs for the full year?A: Well, I wish I knew the answer for that, but you must recognise that there is a lot of up and down movement of the crude oil prices, because of the volatility, we have been going from a period of inventory gains and to some extent inventory losses as well, but our expectation is that unlike the last couple of years, when we have had heavy inventory losses, this year we expect the crude oil prices to be range bound and due to which our inventory gains or losses would either get nullified and it will not be a very significant impact. We believe we should be doing quite well.Q: You pointed out on the inventory gains side, it is at about Rs 5,256 odd crore versus a loss in the Q4. Are the inventory gains going to continue in the coming quarter as well?A: As I said it is a difficult call, nobody can really predict what happens with the crude oil prices. We had seen some amount of drop even during August during the beginning, but towards the latter half of August we saw firming up of prices. Again, we are seeing a little bit of drop, but the only thing is the volatility which we have seen in the earlier couple of years where there has been a sharp drop, that has not been seen, so it has been moving up and down, so we think that the overall impact not be very significant.Q: How much volume guidance can we expect for FY17 as well as FY18 from IOC?A: We think we should be growing at the rate of 5-6 percent at least, that our current expectation. Maybe, FY18 could be even more robust considering that the economic activities would pick up substantially, so we should be able to grow more.