Inventory Gains Save The Quarter For Oil Marketing Companies
A big jump in inventory gains boosted earnings for the country’s three-listed public-sector oil marketing companies, Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd., and Hindustan Petroleum Corporation Ltd., in the first quarter.
Inventory gains rose on the back of the surge in crude prices during the April-June period. Brent crude, the Asian benchmark, averaged around $75 per barrel as compared to $67 in the previous quarter.
Excluding the inventory gains, the core operational business of these companies took a hit due to weaker gross refining margins, lower fuel margins and adverse rupee movement. Refining margins remained poor because of weaker product cracks, while the rupee depreciated nearly four percent compared to the March ended quarter.
The bigger disappointment for the state-owned refiners came in from the marketing segment which remained weak due to subdued fuel margins in rising crude environment. The fall was witnessed despite a rise in sale of petroleum products of all the three OMCs. The fall was because of lower gross marketing margin earned by the company on sale of every litre of petrol and diesel.
The fall in marketing margins could largely be attributed to the restricted increase in retail fuel prices during the state elections despite a surge in crude oil prices.
However July 2018 onwards, the gross marketing margins have remained largely at same levels for the oil marketing companies, while there has been an uptick in the Asian benchmark--Singapore Gross Refining Margins.
Currently all the three OMCs are among the favourite bets of analysts in the oil and gas space. For IOC, most number of analysts have a buy rating, while potential upside is highest for HPCL.