Crude Slips Below $60, But Oil Marketing Companies Aren’t Cheering — Here's Why
Typically, a fall in crude prices improves marketing margins for OMCs as input costs soften faster than retail fuel prices. This time, markets are factoring in policy risks rather than margin upside.
A sharp decline in crude oil prices has failed to lift shares of India’s oil marketing companies, defying the usual playbook where lower crude boosts refining and marketing margins.
Over the past one month, Brent crude has fallen nearly 8% from its peak of $64 per barrel and is now trading around $59–60 per barrel. Yet, OMC stocks have moved in the opposite direction. Indian Oil Corp. is down 5.8%, Hindustan Petroleum has slipped 3.9%, and Bharat Petroleum is lower by 2.3% over the same period.
Typically, a fall in crude prices improves marketing margins for OMCs as input costs soften faster than retail fuel prices. This allows companies to earn higher spreads on petrol and diesel sales.
This time, markets are factoring in policy risks rather than margin upside. Analysts point to two key possibilities if crude remains below $60 per barrel: an excise duty hike or a fuel price cut: both of which could hurt OMC profitability.
Excise Duty Hike Risk
Brokerages estimate a potential fiscal slippage of Rs 35,000 crore to Rs 60,000 crore, driven by GST rate cuts and populist spending announced in several state budgets. With every Rs 1 per litre hike in excise duty generating around Rs 17,000 crore annually, the government may be tempted to raise fuel taxes if crude stays low.
Fuel Price Cut Pressure
Petrol and diesel prices have remained largely unchanged since 2022 despite Brent crude falling below $60 per barrel. This raises the likelihood of fuel price cuts to pass on benefits to consumers, especially in a politically sensitive environment.
In both scenarios — higher excise duty or lower retail fuel prices —marketing margins of OMCs come under pressure. Current marketing margins are estimated at around Rs 8 per litre.
A Re 1 per litre change in marketing margins has a material impact on earnings:
IOCL: EPS impact 14%, EBITDA impact 8%
BPCL: EPS impact 16%, EBITDA impact 11%
HPCL: EPS impact 24%, EBITDA impact 13%
While crude prices have corrected sharply, policy overhangs linked to fiscal math and fuel pricing are capping upside for OMC stocks. Until clarity emerges on excise duties or pump price action, lower crude alone may not be enough to lift OMC valuations.
