State-run oil marketing companies (OMCs) have the capacity to absorb the global crude price shocks as they have made large profits (in the previous quarters) due to low prices, Union Minister for Petroleum and Natural Gas Hardeep Singh Puri told FE on Thursday.
Though it has been widely felt that OMCs whose bottom lines are seen to have already taken a hit in Q2FY24 and looking at losses from auto fuels marketing in the current quarter would still not hike retail fuel prices anytime soon, the minister’s statement gives further credence to such perception.
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For the record, retail fuel prices are market-determined.
“OMCs can absorb high prices and not (opt for) pass-through to retail consumers, as they have the capacity to do so…they made large profits in the past quarters when prices were lower” Puri said on the sidelines of an event here.
Consumers shouldn’t worry about a risk of pass-through of rising crude oil prices to retail prices as the government has already cut the excise duty, the minister added.
In Q4FY23 and Q1FY24, OMCs posted large profits on the back of lower crude prices. However, crude prices started rising again by late September. In September, crude prices reached their highest level at $97 a barrel since November 2022, causing OMCs to face under-recoveries to the tune of Rs 7/litre on the sale of petrol and diesel, said analysts.
The three OMCs – Indian Oil Corp Ltd (IOCL), Hindustan Petroleum Corp Ltd (HPCL), Bharat Petroleum Corp Ltd (BPCL) – recorded a cumulative profit-after-tax (PAT) of approx Rs 30,568 crore in Q1FY24 and Rs 19,759 crore in Q4FY23.
In Q3FY23, the cumulative PAT of the three OMCs was Rs 2,580 crore. Whereas, in the two quarters prior to that, the OMCs posted a net loss in their earnings.
The price of India’s crude oil basket had averaged $109.50/bbl in Q1FY23, and $97.87/bbl in Q2FY23. In Q3 and Q4 of the previous fiscal, it had averaged $85.78/bbl and $80.58/bbl.
In Q1FY24, India’s crude oil basket’s price averaged $77.89/bbl and 86.78/bbl in Q2. The composition of India’s crude basket represents the average of Oman & Dubai for sour grades and Brent (Dated) for sweet grade in the ratio of 76:24, according to the Petroleum Planning and Analysis Cell (PPAC) website. However, the share of Russian crude oil imports – which is largely Urals – in India’s crude oil basket has increased sharply to about 80% in the recent months, which is not reflected on the PPAC website.
Analysts expect the three OMCs to post a weaker performance in Q2FY24 due to lower marketing margins on the back of high crude oil prices. Price of crude oil could rise even further amid the possibility of escalating war between Israel and Gaza in the Middle East.
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In Q2FY24, the gross marketing margin of OMCs in diesel has shown a decline and is currently at Rs 0.3/litre, analysts said. In the first quarter, it was Rs 9.5/litre. In the case of petrol sales, current under recoveries are seen at Rs 5/litre.
Petrol and diesel prices are to be revised daily based on the 15-day rolling average, as per the pricing methodology followed by the OMCs. However, prices have not been revised since April 2022.
Experts believe that a rise in prices of petrol and diesel is unlikely, given the upcoming assembly polls and general elections in 2024.
