Although Indian oil marketing companies are now making a profit of ₹11.1 per liter of diesel and ₹8.7 per liter of petrol, consumers hoping for lower retail prices amid rising inflation Persistently high levels are unlikely to get relief soon, analysts say. Image for representation purposes only.
As global crude oil prices fell below $75 per barrel last week, Indian Petroleum Marketing Companies (OMC) are now making a profit of ₹11.1 per liter of diesel and ₹8.7 per liter of gasoline, but consumers are hoping for lower retail prices in a persistent environment. high inflation is unlikely to get relief anytime soon.
Analysts estimate OMC will need two to three-quarters of those profits to recoup losses incurred through 2022, as they had frozen retail prices for the two fuels since May 2022 when the government cut fuel duties. excise duty on both fuels in the context of high world oil prices following the Russo-Ukrainian War.
The three OMCs – Indian Oil (IOCL), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) – suffered losses of ₹18,622 crore between April and December 2022, the Ministry of Petroleum informed last week, noting that the Gasoline and diesel prices have not increased despite record international prices. Officially, the prices of petroleum products are deregulated and the OMCs are authorized to revise the prices on a daily basis.
From an average of $105 per barrel in the first half of 2022-2023, Brent crude oil prices averaged around $85 per barrel between October 2022 and February 2023, Moody’s Investors Service said in a rating review. of the three WTOs at the end of last month. The agency also noted that this downward trend, coupled with increased purchases of discounted Russian oil, had increased the profitability of these companies.
As US and European banking woes stoked fears of a contagion effect and collapsing demand, oil prices fell below $75 a barrel, pushing India’s OMC gross trading margin to ₹11.1 per liter of diesel and ₹8.7 per liter of petrol. , JM Financial said in a research note on the oil and gas sector.
READ ALSO | India’s unwavering appetite for Russian crude drives January inflows to record high
If crude prices stay below $75-80 a barrel and “the government allows OMC to recoup past losses” by not cutting retail prices, “that should help them recover some of the huge net loss (of ₹50,000 crore) they suffered in the first nine months of 2022-23,” JM Financial analyst Dayanand Mittal said. “Without government compensation, OMC will take two to three quarters to recoup their losses at the current rate,” he said.
Last January, the government approved ₹22,000 crore as compensation to the CMOs for losses incurred due to domestic LPG sales. In the budget for 2023-2024, the Center has allocated ₹30,000 crore as capital support to the petroleum marketing sector.
“While the disbursement timing and capital support mechanism remain unknown at this time, this development is positive for credit and will further support CMO cash flows,” Moody’s said, adding that it expects that the government “remains supportive and compensates the oil marketing companies for their past losses”.
If oil marketing companies do get compensation from the government before the next three quarters, there could be some room for OMC to lower prices sooner if world prices hold at or below the 75 to 75 levels. $80.