Windfall Tax Weighs on Fuel Exporters’ Profits

Windfall taxes have dented fuel exporters’ profits but still left them with margins on diesel and jet fuel that were much higher in the past six months than in the preceding five years. The crude oil prices available to domestic producers after the windfall tax were also higher than in the preceding five-year period.

Margins on petrol since June, however, remained in line with the preceding five-year average in the global market and the windfall tax only marginally shrank it.

Data provided by ICICI Securities showed that the average crack on diesel- the difference between the purchase price of crude oil and the selling price of the refined product-between July 1 and December 15 was $37.40 per barrel, nearly triple the average of $12.70 in the preceding five years from July 2017 to June 2022.

After deducting the windfall tax, which was first imposed on July 1 on the export of fuels and has since been revised every fortnight, the average crack available to exporters was $17.30 a barrel between July and December 15, about 36% higher than the preceding 5-year average of $12.70.

The crack is an indicator of the short-term profit margins of refineries as it compares the cost of crude and the price of the finished product, but does not include other variable or fixed costs of refining.

Strong fuel demand, limited global refining capacity, lower inventories, supply concerns induced by the Russian invasion of Ukraine, and gas-to- oil switching amid high natural gas prices contributed to record-high cracks on diesel this year.

But in petrol, the average crack during July-December 15 was $11.40 per barrel compared with the preceding five-year average of $11.10. After subtracting the average windfall tax of $1.40, the crack available to exporters fell to $10.

In the case of aviation turbine fuel (ATF), a lower intensity of windfall tax ensured stronger margins. The average crack of $33.60 per barrel between July and December 15 was nearly triple that of the preceding five-year average of $11.60. After facto-ring in the windfall tax of $8.30 per barrel, the exporters were left with an average crack of $25.30, more than double what refiners enjoyed in the preceding five years. S-ET

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