Lower Inventory Gains, Weaker Rupee To Impact Oil Marketers

Earnings of the three state-run oil marketers for the quarter ended September could be hit due to lower inventory gains and sharp depreciation of the rupee.

The Indian currency depreciated nearly 6 percent against the dollar in the quarter ended September, while Brent crude oil prices averaged only 1 percent higher compared with the previous quarter.

If the market price of oil falls, refiners that bought stocks at higher prices sell them through retail outlets at lower rates and vice-versa.

Generally, higher average crude prices result in inventory gains for oil marketers, including Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd.

Since the change in average crude prices is lower this quarter, refiners' earnings are expected to be less compared with the quarter ended March. This, however, could be the fifth straight quarter of inventory gains for the oil marketers.

Crude is the major raw material for oil retailers, which is purchased in dollars. Thus, every barrel of crude costs more due to a weaker rupee. For the quarter ended June, when the rupee depreciated by 5 percent, all the three oil marketers reported a foreign exchange loss of over Rs 3,000 crore.

At times, the marketers pass on the costs to consumers.

Gross marketing margin is the mark up earned by retailers on the sale of every litre of petrol and diesel.

Prices of petrol and diesel moved in tandem with that of global crude in the quarter ended September, helping the marketers earn a steady gross marketing margin on the sale of every litre of fuel. This wasn't so in the quarter ended June, when the price hike was muted ahead of the Karnataka elections.

The marketing segment in the ongoing quarter would remain under pressure as the government has asked the oil retailers to lower margins by Re 1 per litre.

Singapore gross refining margins, the Asian benchmark, have averaged around $6.1 per barrel during the quarter—marginally higher than usual. Refiners can earn more for processing every barrel of crude if margins rise. Flat margins are the result of rising global crude prices.