Lower crude oil prices could improve the retail margins of oil marketing companies (OMCs), especially given that there's no immediate pressure to pass benefits on to consumers, Probal Sen, Senior Research Analyst for the Indian oil & gas sector at ICICI Securities, told NDTV Profit.
“A reduction in crude and therefore product prices would have an upward impact on fuel retail margins, but one has to remember that GRMs have spiked quite substantially in the last couple of days,” Sen said.
Gross refining margin, or GRM, is the difference between the value of the petrol output of a refinery and the cost of crude oil.
However, Sen warned that potential inventory losses could offset the positives.
Probal Sen's assessment comes amid the backdrop of OPEC+'s announcement to increase output in April. The decision followed pressure from United States President Donald Trump on OPEC and Saudi Arabia to reduce oil prices.
OPEC+ includes the Organisation of the Petroleum Exporting Countries, along with Russia and other allies. The April output hike will mark their first since 2022.
Crude prices have come down to their lowest level for 2025, hovering around $71 a barrel on Tuesday. Together, these factors can lead to higher earnings for OMCs, according to Sen.
Emphasising the need for perspective while analysing the OMC earnings delta, the ICICI Securities top executive mentioned that the GRM for Q4 FY25 was down to $2.3 to $2.4 per barrel on average versus the Q3 reported numbers. He added that when prices go down linearly, it can lead to inventory losses, and there is still uncertainty on whether they will be compensated for losses incurred on LPG sales.
“Structurally speaking, low prices in a narrow band are always a positive for Indian petroleum companies, whether it's oil prices or gas prices, and there is obviously an earnings delta. If the retail margins actually sustain the current higher levels of Rs 7 plus that they would imply, there are fears the crude could go down even further,” he said.
The top executive added that in a lower-price environment where GRMs are not the key source of earnings growth, HPCL would benefit the most. This is reflected in its stock price behaviour in the opening session of March 5 and also the previous couple of sessions, he said.
HPCL, BPCL, and IOCL would continue to be a preferred pecking order from an investor's point of view, he added.
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