Crude prices tumbled US$20/bbl in November 2008 led by concerns of a deep and lasting global recession resulting in weakening global demand and strengthening of the US Dollar. The following chart shows 14 year historical Crude Oil prices in USD / barrel.
Refining margins have declined sharply and plunged into negative territory in November 2008 led by demand weakness and sharp contraction in product (naphtha and gasoline) cracks. We could see a short-term rebound from current very low levels but expect refining margins to remain under pressure.
For December 2008, the marketing margin for gasoline at Rs10.9/liter (versus Rs1.3/liter in November and -Rs6.6/liter YTD), the marketing margin for diesel at Rs4.6/liter (versus -Rs0.1/liter in November and -Rs11.8/liter YTD). Subsidy losses on LPG and kerosene were at Rs72/cylinder and Rs16.3/liter for December 2008 compared to Rs217/cylinder and s20.9/liter in November 2008. Since current retail prices result in very high marketing margins, expect the Government to cut prices of diesel and gasoline over the next few days.