Oil companies shift into high gear as marketing margin outlook rises

These companies are currently recouping their losses on marketing the auto fuel, benefiting from a fall in global crude oil prices after last year’s rally.

Analysts at Motilal Oswal Financial Services said a fall in benchmark crude prices led to an increase in gross marketing margin 9 more 11.8 per liter for petrol and diesel respectively in the first week of May.

Benchmark Brent crude prices rose after Russia invaded Ukraine in February 2022. Brent was also set to surpass $130 a barrel in June 2022, a level not seen since 2008, as the Russia-Ukraine war raised concerns over supply and energy security.

What is the average loss incurred by the Indian Oil Marketing Companies (OMCs), who have stopped changing auto fuel prices from 6th April 2022? 0.68 and According to Motilal Oswal, 10.1 per liter on petrol and diesel respectively till December.

With Brent now back around $75 a barrel, OMCs have started recouping their losses while boosting the earnings outlook. HPCL’s fiscal fourth quarter (Q4FY23) performance is testimony to this. State-run refiner hits nine-year highest quarterly standalone net profit 3,223 crore in the March quarter, growing by 80% 1,795 crore a year ago. HPCL’s earnings before interest, taxes, depreciation and amortization (Ebitda). 4,660 crore, almost more than double 2,070 crore in the December quarter, and 2,170 crore from a year ago, according to analyst calculations. It was fueled by stellar refinement and marketing performance.

Avishek Dutta, Research Analyst, Prabhudas Lilladher Pvt. Ltd said improved marketing environment will drive near-term earnings with mixed marketing margin for Q1FY24 7 per liter after international diesel prices declined from a recent high of $170 per barrel to around $90 per barrel. Oil prices remained in a range-bound range due to global recessionary conditions and higher interest rates as well as rising demand from China is a positive.

Analysts believe that HPCL, along with other OMCs, is well positioned to benefit from improved marketing scenario and healthy refining profitability.

HPCL’s average gross refining margin at $14.01 per barrel in the fourth quarter increased by $4.9 per barrel sequentially and $1.6 per barrel over a year ago. This was a major factor in the better performance of HPCL.

Meanwhile, IOCL also reported its first net profit growth in five quarters, with Q4 standalone profit rising 67% from a year ago, which analysts attributed to lower oil prices. According to Datta, IOCL’s refining margin at $15.2 a barrel is better than $12.9 a barrel in the third quarter.

While refining performance was strong in the fourth quarter, refining margins experienced some volatility during April and May. Benchmark Singapore’s gross refining margin fell to $3.3 a barrel in early May from an average of $8.2 a barrel in the previous quarter.

Hence, there could be some impact on refining performance in the current quarter, though analysts expect improvement in benchmark GRMs with recovery in global demand.

Nevertheless, the current super-normal marketing margins are likely to support the performance of the OMCs. To be sure, OMCs are being asked to reduce auto fuel prices ahead of major state elections. “We see diesel/gasoline price cuts likely ahead of key state elections in December,” said analyst at Jefferies India Pvt Ltd in its report on HPCL.

However, the government had allocated capital 30,000 crore in the Union Budget will be spent on creating low-carbon infrastructure for OMCs, which analysts said was to compensate OMCs for selling fuel at a loss. its receipt However, Rs 30,000 crore capital subsidy by OMCs could provide an upside trigger, say analysts.