RIL warned that a global recession can hurt oil refining margins, flagging more possibility of pain ahead

Reliance warns the global market that a recession could hit refining margins as owners of the world’s largest oil refinery complex have noted more problems may arise after reporting lower-than-expected earnings this time.

Reliance’s joint Chief Financial Officer V. Shrikant said this Friday “Recession fears are overtaking oil market fundamentals, resulting in lower prices and margins”. He further added that while refiners like Reliance focus heavily on windfall profits, there are also some headwinds, such as higher operating costs due to soaring freight rates and raw material prices. Raw material costs jumped 76% in the June quarter.

The International Monetary Fund will soon cut its global economic growth outlook as substantially in its next update later this month, as per Ceyla Pazarbasioglu, its director for strategy, policy and review. Surging food and energy prices, slowing capital flows to the emerging markets, the ongoing pandemic situation and a slowdown in China are making it “much more challenging,” she added.

A weakness is seen in Crude oil prices in the last two weeks and if it continues this week also it will be the third weekly drop — the longest run of declines this year — primarily due to fears that a global drop may occur in demands for oil.

In the past couple of months, the Reliance industry’s refining business was at boom as it secured cheaper Russian oil shunned by western buyers amid the ongoing war situation with Ukraine. Later the company exported the oil higher price and made a noticeable profit. Now this advantage seems to disappear soon.

India levied taxes on fuel exports and crude oil production to take advantage of a windfall from rising oil prices on July 1, but cut it this week. Srikanth said the tax would reduce the country’s fuel exports.