Refinery margins fell to their lowest quarterly level in two years due to sluggish demand

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The gross refining margins (GRMs) of the refiners fell to $4 per barrel on average in the final quarter of the current fiscal year, which was the lowest quarterly level in the previous two years.

According to the reports, the fall was brought on by the domestic market’s subpar demand for refined goods.

The GRMs, which gauge the gap between the cost of crude oil and the cost of refined goods, reached their pinnacle at $22 per barrel during the same period the previous year when there was a shortage of gasoline due to the conflict between Russia and Ukraine.

In the current quarter, local GRMs that are lower than the historical average are not enough to pay for processing expenses. With typical local industry GRMs of $4 per barrel, refineries won’t be able to recoup their processing costs and may even suffer losses.

However, according to analysts, the outlook for the current fiscal year is encouraging because GRMs have somewhat improved and local refineries might gain from higher inventory levels.

According to Farhman Mahmood, an analyst at Sherman Securities, “FY24 seems to be an improvement for local refineries, as GRMs are better and there are chances to see major inventory profits due to rising crude oil prices.”

Global crude and product markets displayed different trends in the quarter under review, with key product prices falling by 4% to 25% in US dollar terms while the price of Arab Light crude oil fell by 3%.

The spreads over crude oil for diesel and jet fuel, which make up around 49% of the product lineup of regional refineries, sharply decreased, indicating a reduction in demand for these goods.

Diesel’s spread decreased from $30 per barrel in the previous quarter to about $14 per barrel, while jet fuel’s spread decreased from $46 per barrel to about $17 per barrel.