India:
Following the implementation of the Thatch tear tax, the realised spread on diesel and gasoline has decreased to almost loss-making levels, and the realised spreads on aviation fuel and crude have also fallen below 15-year averages. A sharp decline in the refining margins for diesel, gasoline, and ATF along with a drop in crude oil prices from their June highs have reduced refiners' super-profits.
The government unexpectedly increased export taxes on gasoline, ATF, and diesel on July 1 (Rs 6 per litre or USD 12 per barrel), as well as a windfall tax on domestic crude production (Rs 23,250 per tonne or USD 40 per bbl). The finance ministry announced at the time that the taxes would be reviewed every two weeks.
the last two weeks have seen a massive crash in the refining spreads (or margins) of diesel, gasoline (or PET), and aviation fuel (or ATF) coinciding with a cool-off in crude prices from their respective peaks seen in June. this calls into question the continuation of the windfall tax imposed about two weeks ago.
The realised spread on gasoline and diesel has decreased to almost loss-making levels and the realised spread on crude and aviation fuel has fallen below 15-year averages.
The realised refining spread is reduced to almost a loss-making level of just USD 2 per barrel by a windfall tax of USD 12 per barrel on this. Similar to how the diesel spread would be pitiful after the USD 26 per barrel export tax.
A 15-day review of this tax was also promised. Government representatives went to great lengths to emphasise that the windfall tax announcement should be viewed as an extraordinary measure during a period of extraordinarily high gains for oil companies.
This sharp decline in global prices may necessitate reconsidering this tax since the next review is due later this week. One might not have anticipated the government to act so quickly but if the price stays close to current levels there is a good chance that relief will come in one of the reviews this quarter the brokerage said.
If this tax is in place for a long time India's reputation as an export- and manufacturing-friendly country may suffer. If current prices continue,we expect a rethink in one of the fortnightly reviews promised by the government," it stated. Any easing of restrictions would be a relief for Reliance Industries Ltd. as well as a major trigger for ONGC and Oil India.
While the state-owned Oil and Natural Gas Corporation (ONGC) was expected to suffer greatly from the windfall tax on domestic crude oil production, Reliance, which had recently increased fuel exports in order to meet demand in Europe and elsewhere, could see its refining margins reduced by up to USD 12 per barrel as a result of the export duties.
From its peak of USD 55–60 per barrel in June, the refining spread for diesel has almost been cut in half to USD 30 per barrel. ATF spreads also dropped from USD 50–55 per barrel to USD 25–30. Also reduced from USD 30-35 per barrel last month to USD 10-15 are gasoline spreads.
The price of Brent crude has also decreased over the past two to three weeks by about $15 to $20 per barrel, to about $100 per barrel.
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