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Tag: oil companies in india

  • Reasons How Castrol India witnessed a huge profit in Q1 2021

    In the first quarterly results of the leading lubricant player Castrol India, there was a huge rise in their profit and almost doubling of their net income compared to the previous year. It was announced during the company board meeting which was held on 26 April 2021. Let’s look at the reasons why Castrol India saw a huge profit in the Q1 of 2021.

    About Castrol India
    Results of Castrol India
    Reasons for the Profit
    FAQ

    About Castrol India

    Castrol India is an automotive and industrial lubricant manufacturing company. The company owns around 20% of the market share in the overall Indian lubricant market. The company was founded in the year 1910 and has its headquarters located in Mumbai, India.

    The company comes under the oil and gas industry. Some of the products of the company include Oil, petroleum, petrochemical and lubricants. In India, Castrol India is the 2nd largest manufacturer of automotive and industrial lubricants.

    In various parts of the country, there has been a slowdown in the industrial activities due to the second wave of the pandemic. The company has said that there have been disruptions in the supply of base oil, availability of raw materials and certain other challenges such as logistics and rupee depreciation.

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    Results of Castrol India

    On 26 April 2021 during the board meeting of Castrol India, the company had announced that its net income had more than doubled itself compared to the previous year. The first quarter net income for the month of January to March was about INR 243.6 crores against the previous quarterly results which were about INR 125.2 crores.

    The revenue of the company had grown to INR 1,138.7 crores in the first quarter from the previous year of INR 688 crores. The revenue of the company for the previous year which ended in December 2020 was about INR 2,996.9 crores and the net income of the company was around INR 582.9 crores.

    For the first quarter of 2021, the company’s revenue from operations has seen a growth of around 66% which amounted to INR 1,138.7 crores and Castrol India had seen their profit grow to more than double to INR 243.6 crores compared to the previous quarters INR 125.2 crores.

    The quarterly results were said in a statement by the Managing Director of Castrol India, Sandeep Sangwan.

    Total Income of Castrol India Ltd.
    Total Income of Castrol India Ltd.

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    Reasons for the Profit

    One of the main reasons for the increase in profits and the net income of the company is due to its exponential growth of the revenue of Castrol India. The Managing Director Sandeep Sangwan said that, the good numbers that were seen in the quarterly results were mainly due to the focused investment activities, actions and the interventions made by the company during the second half of 2020.

    The above set of actions included the steps such as the building of the brand, corrective pricing, Increasing the marketing and spending on advertisements for building brands and the introduction of new products.

    The achievement of the huge profit has also been supported by the improvement according to the trends and demand especially in the sales of SUV and tractor during the first quarter of 2021.

    He said that the increase in cash from operations that is INR 269 crore in the first quarter of 2021 was mainly due to the implementation of a cost efficiency programme and judicious working capital management. The cash from operations of Castrol India is equivalent to 1.1 times of the net income.

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    FAQ

    Is Castrol an American company?

    Castrol is a U.K.-based producer of industrial and automotive lubricants for a global market.

    Who is Castrol oil owned by?

    Castrol is a wholly-owned subsidiary of BP PLC.

    What does BP stand for now?

    BP stands for British Petroleum Company Limited.

    Conclusion

    The covid-19 pandemic has made it hard for most of the industries and Castrol India has also conveyed that the second wave will have an adverse impact on their demand and supply. This may be seen in the further quarterly results announced by the company.

  • How Rockefeller built his trillion-dollar oil empires

    How many wealthiest Businessmen or tech giants are living today? There are plenty of them who have worked their path through to the billionaire. But the only name topping the chart died almost a century ago. The businessman who continues to rank as one of the richest men in modern times built a trillion-dollar oil empire. This is the story of John Davidson Rockefeller(1839-1937).

    He is still one of the great figures of Wall Street, reviled as a villain, applauded as an innovator, but universally recognized as one of the most powerful men in history.  

    Early Stage of Rockefeller

    John was a smart individual since childhood. He got his hands into a lot of tasks, including raising turkeys and doing chores for neighbors, to make any money for his survival.

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    He received an unusually good education for his time till the age of 16 and then found a job as an assistant bookkeeper at a company called Hewitt & Tuttle, but he left that position in order to form a business partnership with oil driller Maurice Clark, that would later become Rockefeller, Andrews & Flagler, a company that focused on oil refineries rather than drilling.

    Frustrated with the low wage rate at the Bookstore, he decided not to invest his more time into the job and get some higher paying work. He then managed to secure a loan and started selling food products, such as grain and meat.

    The business boomed and John made some serious money. He was far from a millionaire though, but he didn’t do too bad for an inexperienced teenager. He was only 18, but the banks, impressed with his commercial acumen, were ready to loan him more money.

    Standard Oil

    In 1865, Rockefeller had borrowed some money to buy some of his partners and take control of the refinery. Over the course of the next few years, he acquired new partners and expanded his business in the growing oil industry. In 1870, Rockefeller formed the Standard Oil Company of Ohio, along with his younger brother, and a group of other men. John Rockefeller was himself the president and largest shareholder.

    Standard Oil Company
    Standard Oil Company

    Rockefeller’s Oil Monopoly

    In 1859, the first oil well in the United States was discovered. And so there began the oil rush and rise in demand. A lot of passionate entrepreneurs, including Rockefeller, rolled up their sleeves and prepared to grab their slice of the pie.

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    John Rockefeller not only sold refined crude oil but he also squeezed profits from byproducts like paraffin wax, tar, and naphtha. He didn’t buy wooden barrels from other businesses, he bought a forest and used his own wood to produce barrels to store oil.

    The revenue kept coming and Rockefeller made all the small competitors surrender to his authority. Rockefeller incorporated his company as the Standard Oil Company in 1870.

    But there was one thing that was still bothering him. There were four more competitors left and Rockefeller, who was raised in a crowded household and earned 50 cents a day, wasn’t a big fan of sharing.

    Rockefeller’s Standard Oil gained a state of monopoly in the oil industry by buying rival refineries and developing companies for distributing and marketing its products around the globe. In 1882, various companies were combined into the Standard Oil Trust, which would control some 90% of the nation’s refineries and pipelines.

    By 1890, his company, Standard Oil, was gaining major profits, which he used to buy out competitors. While Rockefeller’s offers were usually readily accepted, he had ways of persuading holdouts.

    He bought up all the oil barrels to cause a shortage that crippled smaller companies. Orchestrating price wars between wholly-owned subsidiaries, forcing holdouts to sell at losses. Also, Secretly bribing legislators.

    Limiting the number of trains available for shipment by leveraging his close relationship with the railroad companies. Purchasing all of the equipment and the equipment suppliers, then refusing to sell replacement parts to holdouts.

    Rockefeller’s Journey to Trillion Dollar Empire

    Standard Oil Trust

    After his failure to reorganize the rail industry, Rockefeller decided to restructure his sprawling empire. He and his partners innovated a first of its kind trust, where they swapped their individual holdings for shares in the trust. Rockefeller now wielded centralized control and veto power on all of the corporate boards within his conglomerate. The immediate benefits included even lower costs, lower kerosene prices, and standardization across the industry. Rockefeller’s company now had the assets and wealth to build pipelines and other infrastructure, on a scale that was previously unthinkable.

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    Standard Oil also employed chemists who developed ways of increasing the types and quality of combustible fuels and created methods of converting waste into usable substances. The petroleum coming out of the ground was being refined into various products, such as diesel fuel, varnish, and hair gel. As the new products became cheaper to produce, the company increased its global economy of scale.

    Standard Oil had its hands in many ancillary industries, such as iron, copper, steel and coal, but it also grew its presence in more unexpected areas, such as general stores. Rockefeller wisely forced shops to carry his products alone, where he was able to draw on the empire’s war chest to slash prices, thereby driving non-compliant shop owners out of business. Standard Oil likewise bought up newspapers to promote its version of events. It also owned its own boats, railroad cars, and warehouses, while manufacturing its own sulfuric acid.

    Rockefeller’s later life

    After retiring in 1896, Rockefeller channeled his energies towards philanthropic deeds, donating millions of dollars in the latter years of his life. With his son’s help, he created the Rockefeller Foundation, to carry on his work after he died. His business practices and charities have nonetheless benefited millions of people.

  • Causes of fluctuations in Oil prices and its impact on economy

    Oil prices fluctuate quickly in response to new cycles, policy changes, and fluctuations in the world trades and it impacts the economy in certain ways . The recent change in oil prices has been driven by a number of factors which includes several years of upward surprises in the production of unconventional oil, weakening global demand, unwinding of some geopolitical risks and an upliftment of the U.S. dollar. Oil prices are also influenced by a variety of factors that are particularly responsible for the decisions made about output by OPEC, the Organization of Petroleum Exporting Countries. Oil, a commodity which tends to see larger fluctuations in price than more stable investments such as stocks and bonds.

    Like any other market product, the laws of product’s supply and demand influence its prices. The retainment of stable demand and oversupply has put pressure on Oil prices over the last five years.

    The drastic fall in oil prices since June 2014 is a significant but not a new event. Over the past three decades, the oil price declines of 30% or more in less than a year period occurred, coinciding with major changes in the global economy and oil markets. Natural disasters that could entirely disrupt production and political unrest in an oil-producing industries like the Middle East impacting its pricing.

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    How Oil prices are determined?

    All the relative factors of change in Oil prices is difficult to systematically pin down. Empirical estimates also indicate that supply factors have accounted for the greater share of the latest plunge in oil prices. Although the supply capacity of relatively high-cost and flexible producers, such as shale oil industries in the US, will need to adjust to lower prices. Most of the important factors point to lower oil prices with considerable volatility in global oil markets.

    Demand and Supply

    Like all the other commodities, the oil prices are also set by the study of demand and supply. The price of oil is actually fixed in the oil futures market. The oil futures contract is an agreement that gives one the right to purchase oil by the barrel at a predefined price on a particular set date in the future. Under a futures contract, both the buyer and seller are obligated to fulfill their side of the transaction on the specified date.

    Market sentiment

    One of the key factors in determining oil prices is sentiment. The mere belief that demand of Oil will increase dramatically in the future can result in a dramatic increase in Oil prices in the present, as speculators or hedgers alike snap up oil futures contracts. The opposite of this situation is also true. The belief that oil demand will decrease at some point in the near future can result in a dramatic decrease in oil prices in the present, which means that prices can fluctuate little more than market psychology at times.

    Natural Disasters

    Natural disasters are one of the factors that can determine oil prices. For instance, when Hurricane Katrina devastated the U.S. in 2005, affecting almost 20% of the U.S. oil supply, it caused the price per barrel of oil to rise by $13.56. In May 2011, the flooding of the Mississippi River also led to oil price fluctuation.

    Economical Impact of COVID-19 on Oil and fuel Industries all over the world
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    Causes of fluctuations in Oil prices

    Fluctuations in Oil prices
    Fluctuations in Oil prices

    Weather

    If the weather is too windy, the oil rigs and transport facilities in the US Gulf are likely to shut down or may even suffer damage. If there occurs loss of oil production, this may lead to higher oil prices because the region’s refineries, which depend on the Gulf’s output, are forced to seek crude oil elsewhere. Meanwhile, cold temperatures mean that the pipelines cannot be switched off, it is one of the reasons why it is difficult for Russia to support OPEC in cutting production during its winter.

    Extreme Warm and cold temperatures, especially for prolonged periods, can dramatically increase the demand for crude and heating oil for cooling and heating, respectively, as opposed to the softening effect of more moderate temperatures. If the climate is particularly hot then more crude oil is used in power generation, resulting in less available to be exported.

    The US dollar

    Most internationally traded commodities, even oil is priced in US dollars. The decrease in the value of the US dollar relative to a commodity buyer’s currency means that the buyer will need to spend less of their own country’s currency to buy a given amount of the commodity. As the commodity becomes less expensive, demand for the commodity rises, resulting increase in the price and vice versa.The relationship between oil prices and the US dollar works both ways.

    A weaker dollar can also act as a disincentive to producers to increase output. Depreciation in the US dollar against the Russian ruble can reduce profit margins for oil companies in Russia. All of the oil producers revenues will be received in US dollars, which will buy less rubles, but some proportion of the costs will be denominated in rubles and will remain constant. Hence, the prospect of a lower profit margin acts as an incentive to decrease the supply of oil.

    War and conflict

    A look at a simple oil price chart back to the 1970s reveals a series of bumps. Each of these can be pinpointed to wars and conflicts, whether it was the Iranian revolution, the Iraqi invasion of Kuwait or the US-led invasion of Iraq in the second Gulf War. Recently, Arab related uprisings in Libya or Egypt have also affected the oil price.

    Looking at the chart of first Gulf War is a good case study. The invasion of Kuwait by Iraq caused prices to plunge higher but then as soon as the US led invasion started oil prices fell back on speculation that the conflict would be brought to a concrete conclusion and that the military would secure oil manufacturing facilities.

    OPEC supply

    A statement of intent can often be enough to influence sentiment and result in higher prices during a period of weakness. Despite the influence, OPEC have a poor record of sticking with their agreements. The conflict between members and non-OPEC producers means that there is an incentive for individual members to overproduce.

    Unplanned outages

    Possible reasons of Unplanned outages include the weather, maintenance or civil unrest, etc.

    Stocks/Inventories

    Stocks act as a form of extras for both producers and consumers of a commodity. Falling stock levels, however, make a particular commodity market more vulnerable to an unanticipated disruption to supply or a sudden increase in demand. There is an inverse relation between stock levels and the price of oil.

    Impact of change in Oil prices

    Impact on Economy

    Monthly oil prices from 1990 to early 2008, using the spot oil price for West Texas intermediate and the U.S. retail gasoline price. The series track each other closely over time, increase in oil prices are accompanied by increase in gasoline prices.

    Global demand for oil has been sky-rocketing, outpacing any gains in oil production and excess capacity. The reason behind is that developing nations, especially China and India, have been growing rapidly. These countries have become increasingly industrialized, which contributed to an increase in the world demand for oil. Addition to it, in recent years fears of supply disruptions have been spurred by turmoil in oil-producing countries such as Nigeria, Venezuela, Iraq, and Iran.

    The astoundingly sharp increase in the price of oil in the last half of 2007 and first half of 2008 has led many to argue that increased speculation in markets has played a role and there is evidence of increased activity in these markets. However, the speculation is playing a role in high oil prices is open to debate. It is even useful to remember that both the demand and supply of oil react sluggishly to changes in prices in the short run, so very large changes in prices can be required to acquire equilibrium.

  • Impact of COVID-19 on Oil Industry

    As everyone is aware of the COVID-19 situation the world is facing right now. On the brink of this cliff, we can just hope that everything goes back to normal. Into the list of unprecedented victims, the Oil Industry has been added to it successfully. The chaotic change in the prices of Oil during COVID-19 outbreak is like adding fuel to the fire.  

    The recent news about Super Contago(when the space to store the tangible products is running out due to excess supply) has shook the world inside out. This pandemic is going to be near about compared with the 2008 depression.

    The surge in supply of crude oil was due to lack of demand across the world. The world implementing complete lockdown has brought the global Oil Industries to an acute dearth of available storage facilities. The sudden termination in the utility of the fuels has worsened the situation. Oil Industries were already under pressure from lower oil and fuel prices because of a warm winter even before the COVID-19 outbreak and the price war between Saudi Arabia and Russia.

    For the first time in history, WTI crude oil prices fell below $0 per barrel and entered into the negative territory.

    As there is no early hope of how to recover from this situation in the near future, the key issue of Oil inventory storage is likely to remain. If the Oil and fuels are stored at the pennies, the non-Saudi shale companies would have to pay to dispose the excess stock off. And as a result, they may have to further narrow the rate of production by shutting down their rigs and oil wells to avoid plunging into deeper financial troubles.

    Reasons of decline in Oil Industry due to COVID-19

    With history and the growing tension between the USA and Saudi Arabia regarding the Oil prices and the export business. The shale players were already tested with their limits even before the pandemic. COVID-19 is not the major reason why Oil prices are falling.

    • The world i.e. direct or indirect dealers in Oil market are either tested positive of COVID-19 or too cautious to take a physical step forward.
    • The interested dealers reside in an area which have been quarantined or are facing national lockdown.

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    Actual Effects on Oil Industries worldwide

    Surge in oil prices can reduce demand for other goods because they reduce wealth, as well as induce sheer uncertainty about the future. The rise in Oil price can also suppress the growth of the economy through their effect on the supply and demand for goods other than oil.

    Iran faced a decline in oil prices. The majority of revenue took a hit due to the unexpected outbreak of COVID-19. The price of Iran’s heavy crude plummeted to below $14/barrel down from $44 or more per barrel in February. It also had to allow it’s buyers to come directly with it’s tankers to it’s refineries, plug in and fill up. Thus removing transit fee, insurance and whatever maritime indemnity from the cost of each barrel.

    Iran and Iraq want to produce enough to satisfy their markets by offering to produce more to gain new markets, and deliver through their own agents. But the problem here missed is, an offer in the international market doesn’t happen overnight.

    Saudi Arabia cuts down the price oil in a day since the 1991 Gulf War, estimating the prices further could fall $20 a barrel. Whereas, Saudi Arabia needs oil prices at around $82 to balance the market.

    Angola, Algeria and Venezuala are suffering the most by loosing around 85% of their oil and gas revenue this year.

    The dispute between tow biggest oil producers which are Saudi Arabia and Russia has pushed the oil prices in four years.

    China, the world’s biggest oil importer, is now consuming much less oil and energy due to disruption in the manufacturing industries. Moreover, Countries would rather stock up the bottles of fresh water, poultry products, meat, vegetables, pharmaceuticals and other necessities rather than burning fuel.

    Graph of oil prices over the passage of years
    Graph of oil prices over the passage of years

    OPEC members and its allies finally agreed to make a deal to slash global output by about 10%. Therefore, the deal led to largest cut in oil production ever.

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    How does change in Oil prices affect India?

    There are number of ways we can look into this due to the slump in oil prices.

    Impact of Oil prices on Indian Economy

    Almost 85% of oil is imported from the big oil industries. Low oil prices reduces India’s import bills and it can also give space to the government to increase fuel taxes, offsetting low direct tax collection. Furthermore, low oil and petroleum costs also bring down the energy prices, moderating the inflation rate. “India being a net oil import contributor tends to gain immensely from oil prices drop on its import bill,” Madhavi Arora, Economist.

    Indian Economy has a possibility of getting a hike of 1.4% points GDP.

    It is interesting to mark that the prices for retailers/investors have not been reduced since the government is using the buffer amount to fund its expenses. However, once the lockdown comes to an end, the government faces increased pressure to reduce the fuel prices for consumers.

    However, the oil industries are in deep trouble due to terrific crash in demand. Dealers and Refiners imported a tons of crude oil before price crash resulting heavy inventory losses, with negligible sales revenue and repeating the cycle.

    An add on to this fiasco, from a consumer’s point of view, is that reduced oil prices help in slowing inflation. Also, there are many possible ways to measure real oil prices, depending on which measure of inflation you use.