State-run oil marketing companies IOCL, BPCL, and HPCL's marketing margins turned negative in the July–September quarter of the financial year 2023–24, against a profitable April–June quarter. This is on account of higher crude oil prices globally, while there has been a pause on retail fuel prices since April 2022.
As a result, earnings of the OMCs are likely to be impacted, but this will be partially offset by higher gross refining margins during the quarter, which analysts believe will sustain around $9 and $10 per barrel, led by higher product cracks.
The OMCs' average marketing profit of Rs 9.80 per litre in the April-June quarter on diesel has turned into a loss of Rs 0.40 per litre in the July-September quarter. Similarly, the average marketing profit of Rs 8.70 per litre on petrol has come down to Rs 3.5 per litre in the same period," Sumit Pokharna, vice president and oil analyst at Kotak Securities, told BQ Prime.
"Oil markets are likely to remain tight and crude prices elevated due to seasonal demand and tight supplies in the second half of fiscal 2024," Pokharna said. “Access to attractively priced Russian crude oil will improve profitability for refiners.”
Brent crude oil price has risen over 38% in the past three months to a high of $97 per barrel, riding on the additional 1.3 million barrels per day production cut announced by Saudi Arabia and Russia till December 2023. The voluntary cuts are on top of the 3.7 million barrels per day cuts—equivalent to 3.6% of global demand—already agreed by the OPEC-plus till the end of 2024.
Jefferies, in a report last month, said that OMCs are losing Rs 9 per litre on diesel currently and would see a marketing loss of Rs 45,000 crore in the first half of FY24, assuming current Brent and diesel prices. “With key elections in December, the possibility of a retail price cut for diesel and gasoline cannot be ruled out,” the brokerage said.
Analysts, however, believe the overall impact on refiners and marketers would be offset by the Russian crude oil that Indian refiners continue to source at discounted prices.
According to data from LSEG, Kpler, and Vortexa, Russian oil deliveries to India rebounded in September after hitting a seven-month low in August, following a drop in Middle East oil prices.
In September, India imported around 1.55 million barrels per day of Russian oil, up 16% from August. In contrast, imports from Iraq rose by 17% to around 1.1 million barrels per day, according to LSEG data.
The amount of Russian oil imported by India experienced a notable surge in September, peaking at an impressive 1.8 million barrels per day. This represents a substantial increase from the slightly below 1.5 million barrels per day recorded in August. Meanwhile, India's imports from Saudi Arabia decreased to around 6,76,000 barrels per day in September, marking a 10% decline compared to August.
Looking ahead, in the short term, a strong domestic demand for petrol, diesel, and aviation turbine fuel is anticipated, as retail prices of petrol and diesel are unlikely to mirror the upward trajectory of Brent crude prices, CareEdge Ratings said in a report recently.
“This stance is evident as retail prices have remained stagnant since April 2022, even when crude prices fell to $72 per barrel,” it said. Furthermore, the onset of winter is expected to bolster the export demand for refined products, especially diesel, owing to the continued disruption in the supply of natural gas from Russia to Europe.
“FY24 should see a switch in the growth drivers, and marketing margins would see an overall increase,” Barnik C. Maitra, managing partner, India and South Asia at consultancy advisory firm Arthur D. Little, said.
“It could veer to an operating profit of Rs 5-7 per litre, while gross refining margins may moderate to $6-$8 per barrel as the global product demand-supply imbalance would ease,” Maitra said.
This forecast is predicated on crude oil prices averaging $80 per barrel and no cut in retail pump prices, he said.
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