Business | Oil & Gas
World's biggest refinery unlikely to curb oil prices
Reliance plant likely to have much greater impact on global refinery profits and balance sheets than on crude futures or retail fuel costs.
- Reuters
- Published: 00:04 August 2, 2008
Singapore: On India's West coast, the world's biggest refining complex is nearly ready to begin pumping a wave of diesel fuel into the world oil market, removing one of the last near-term fundamentals supporting $100-plus crude.
But unfortunately for oil consumers and for a fragile world economy, Reliance Industries's new plant is likely to have a much greater impact on global refinery profits and price spreads than it will on New York Mercantile Exchange crude futures or prices at the petrol pump.
Although a severe refining bottleneck was one of the initial catalysts for oil's six-year rally, it has been eclipsed by the growing importance of financial investors, attacks by Nigerian militants and lacklustre upstream oil output growth.
"The notion that new refineries will bring significantly lower crude prices doesn't look likely," says Kevin Norrish of Barclays Capital, which has been a consistent bull on prices.
"We may see some narrowing in spreads between heavy and lighter grades... but we don't see any major changes in crude price dynamics, since there are other more important factors at work."
Reliance is expected within weeks to begin test running a new 580,000 barrel per day (bpd) refinery in Jamnagar, with full-fledged operation likely by early next year, industry sources say.
Together with its existing 660,000 bpd, built less than a decade ago, the site will be world's biggest.
More remarkable is the fact that the new plant - the most sophisticated in the world for its size - will produce an estimated 40 per cent diesel, helping meet demand that has surged due to power shortages and growing use in passenger cars.
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