Indian OMCs Trade Higher After Gross Refining Margins Rebound

Shares of Indian oil marketing companies were trading higher on Thursday after the Singapore gross refining margins recovered from the recent dip. Hindustan Petroleum Corp., Bharat Petroleum Corp. and Indian Oil Corp. hit intraday high of 5.43%, 4.27% and 3.61%, respectively. Meanwhile, the Nifty Oil and Gas index gained 1% as of 9:57. a.m.

Singapore gross refining margins, which are a benchmark for profitability in the Asian refining industry, had fallen 50% to $3.6 per barrel by April 12 from $7.3 per barrel on March 1, according to analysts' data sourced from Reuters.

However, there are recent signs of a rebound, as on Thursday, GRMs surged 25% from a week ago to $4.5 per barrel from the levels seen just a week ago.

Gross refining margins, or GMR, represent the difference between the price of crude oil entering a refinery and the price of refined products like gasoline and diesel coming out.

Higher gross refining margins translate to better profitability for oil marketing companies and are therefore a positive trigger for companies like Hindustan Petroleum, Bharat Petroleum and Indian Oil.

The gross refining margin essentially represents the spread between the price of crude oil that OMCs purchase and the selling price of the refined products they produce. When this spread widens due to higher GRMs, OMCs earn more money on each barrel of crude they process. This translates to an immediate improvement in their bottom line.

Higher profits from refining also allow OMCs to have a healthier cash flow, helping strengthen their financial position.

Here are the analysts' recommendations on Indian oil marketing companies: