‘’We believe that OMCs are effectively cushioning all the impact of the oil price, product crack, logistics cost, and currency fluctuations. Furthermore, we do not expect OMCs to have any pricing power on petrol, diesel, and liquified petroleum gas or LPG (~80-85 per cent of sales volume) in Q1FY25,” Pokharna told LiveMint.
The lack of pricing power with OMCs ‘’remains our key concern,” he added. India’s three major state-owned oil marketing companies (OMCs) Indian Oil Corporation (IOC), Bharat Petroleum Corp Ltd (BPCL), and Hindustan Petroleum Corp Ltd (HPCL) posted a combined net profit of ₹81,336 crore in the previous financial year till the end of the March quarter (FY24).
Also Read: Built-in capacity to targets: Why OPEC+ members clash over oil production capacity—Explained
Will OMCs cut petrol, diesel prices soon?
The government had passed on the responsibility of revising the retail prices of petrol and diesel to the three state-run OMCs almost a decade ago. Typically, OMCs revise the fuel prices by taking into account the international crude oil prices and the rupee-dollar exchange rates.
‘’In Q1FY25 till date, the diesel marketing margins have reduced to Rs.2.6/litre from Rs.3.4/litre in Q4FY24. Similarly, in Q1FY25 till date, petrol marketing have reduced to Rs.1.8/litres from Rs.6.0/litres in Q4FY24. We believe any meaningful correction in crude oil prices can improve marketing margins,” said Pokharna of Kotak Securities.
The government last lifted the freeze on retail prices of petrol and diesel on March 15, 2024, for the first time in two years, ahead of the then-expected schedule announcement for the Lok Sabha elections 2024. Before this, rates were last revised in April 2022.
With effect from Friday, March 15, prices of petrol and diesel were reduced by ₹2 per litre across all states. The fuel price reduction came one week after cooking gas or LPG prices were cut by ₹100 per cylinder and for the free connection cylinders under the Ujjwala scheme.
As of June 5, the cost of petrol in Delhi is ₹94.72 per litre and diesel is priced at ₹87.62 per litre. The petrol price in Mumbai continued to exceed the ₹100 mark, reaching ₹104.21 per litre, while diesel was priced at ₹92.15 per litre.
OMCs stare at dismal earnings in Q1FY24
In Q1FY25 till date, the dated Brent crude oil prices have increased by 3.8 per cent compared to Q4FY24. Higher crude oil prices are negative for refining companies in general and can further result in selling pressure on OMC stocks as the oil refiners purchase raw crude. India is a net importer of crude oil, which fulfills as much as 85 per cent of its energy needs through imports.
Currently, international crude oil prices are hovering near four-month lows after markets weighed the policy decision by the Organisation of Petroleum Exporting Countries (OPEC) as it plans to begin tapering some output cuts later this year.
Brent crude futures was last up $77.91 a barrel while the US West Texas Intermediate crude futures rose 39 cents, or 0.5 per cent, to $73.64. Both contracts fell more than one per cent on Tuesday to their lowest settlement levels since early February, having declined by about $3 a barrel on Monday.
According to the domestic brokerage firm, Q1FY25 is set to be dismal for OMCs due to the following reasons:
-A correction in refining margins over the past few weeks (Q1TDFY25: SG complex margin of $3.5 per barrel compared to $7.3/bbl sequentially)
-The return of the auto fuel under-recoveries.
India’s top refiner, IOC refines crude oil into products like petrol, diesel, LPG, and aviation turbine fuels. It also makes petrochemicals and retails CNG. IOC owns and operates 10 oil refineries with a combined capacity of 80.6 million tonnes, making up for almost a third of India’s 251.2 million tonnes of refining capacity.
The OMC also owns 36,285 petrol pumps out of 86,855 pumps in the country. Besides, it owns half of the nation’s 25,386 LPG distributors. It runs 131 out of 283 aviation fuel stations in the country. Additionally, as the second-largest OMC, BPCL boasts an established position and stands to benefit from receding crude prices. With sectoral tailwinds and a massive capex plan, BPCL is primed for a strong performance in the foreseeable future, according to analysts at StoxBox.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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Published: 05 Jun 2024, 07:02 PM IST
