In September, global crude oil prices surged past the $90 per barrel mark, posing challenges for Indian Oil Marketing Companies (OMCs) like Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL). The escalating costs have resulted in a noticeable decline in profit margins.
Impact of Surging Crude Oil Prices on Indian Oil Marketing Companies
Brokerage firm Prabhudas Lilladher reports that the gross marketing margin for petrol and diesel in September stands at Rs 5.5 per liter and Rs 3.8 per liter (loss), respectively. This contrasts with Rs 10.6 per liter and Rs 10.2 per liter in the first quarter of the financial year 2023-24. The second quarter margin registers at Rs 8.4 per liter and Rs 2.7 per liter.
As of September 18, crude oil was trading at over $94 per dollar. JM Financial advises caution for all oil marketing companies in the near future. The brokerage firm suggests that if Brent crude remains above $85 per barrel or if these companies are compelled to lower diesel/petrol prices in the coming months, it may impact their earnings.
Nevertheless, India may benefit from economical Russian crude oil, available at G-7 price levels of approximately Rs 60 per barrel. Despite sanctions imposed on Russia by Western nations, India has secured significant supplies of crude oil from Russia.
Potential Benefits of Economical Russian Crude Oil for India
According to a CareEdge Ratings report, Indian refining companies stand to gain from Russian crude oil, potentially yielding gross refining margins of $9-10 per barrel in the financial year 2023-24. The decline in refining margins due to branded crude may be offset by the cost advantages of Russian crude oil. However, Russia’s share in India’s crude oil imports decreased by 23% in August.
The increase in crude oil prices has been driven by concerns over supply shortages, production cuts announced by Saudi Arabia and Russia, and the anticipation of heightened demand from China’s surging economy. China, as the world’s largest energy-consuming country, plays a pivotal role in global oil demand.
Oil marketing companies had returned to profitability in recent quarters after facing significant losses in the first half of FY 2022-23. The stabilization of crude oil prices around $75 in the first quarter of the financial year 2023-24 contributed to their resurgence. In the first quarter, oil refining companies posted a consolidated net profit of Rs 32,147 crore. However, the current spike in crude oil prices above $90 per barrel may once again challenge the performance of these companies.
