An employee uses a fuel pump to fill a customer’s vehicle with unleaded petrol in Dubai, United Arab Emirates. (Photographer: Gabriela Maj/Bloomberg)

HPCL Says Crude Fall Won’t Impact Marketing Margins Much; Assuages Inventory Loss Fears

State-run Hindustan Petroleum Corporation Ltd. said that the recent fall in crude prices would not have “much of an impact” on its marketing margins.

The reason is that “marketing margins aren’t purely a function of crude prices, it’s also a function of international product (or gasoline) prices”, HPCL Chairman and Managing Director MK Surana told BloombergQuint in an interview.

Oil companies do not make huge profits if crude prices are high and less profits if prices are low...If prices are in the lower side, the only advantage is that there’s no concern in the market that we will be able to pass on the full impact of crude prices.
MK Surana, CMD, HPCL

The fall in crude prices will boost gross refining margins, Surana added.

Brent crude prices plunged 4.6 percent to $71.8 per barrel on Monday, the lowest level in three months, after Bloomberg reported that Saudi Arabia was offering extra crude to some customers, including Asian countries like India, while the U.S. reportedly considered tapping emergency supplies, to offset output losses around the world. Prices had hit a three-year high last month on supply-side concerns due to U.S. sanctions on Iran.

Inventory Impact

It's too early to say whether the fall in crude prices will lead to any inventory losses for HPCL in the July to September quarter, Surana said.

There will be some inventory in the stocks and some in transit. So sharp movements will have some impact on inventories, but it’s moving on a day-to-day basis. So a longer-term change will make more of a difference than a day-to-day effect. 
MK Surana, CMD, HPCL

Crude Swings

Crude prices have been moving a “bit erratically” in the recent days, and it's more due to news flow than fundamentals, Surana said.

HPCL, which also imports crude from Iran, hopes that the U.S. sanctions on Iranian oil are not as stringent as initially feared. “Actual contours of the sanction on Iran isn't known.”

Surana expects crude prices to remain in the current range for the next month or so. In the winter season, prices would depend on how demand pans out and how geopolitical situations play out, he added.

Shares of HPCL opened 2.6 percent higher and were trading 5.8 percent higher at Rs 279.6 at 1.15 p.m.

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