Higher mark-ups, stable refining margins and likely inventory gains will aid state-run oil refiners and marketers’ earnings in the ongoing quarter.
Marketing margins of the three public sector fuel retailers—Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd.—are the highest in nine months, having risen nearly 30 percent on an average over the previous month in March.
Diesel and petrol have been deregulated and retail prices move in line with the global trend in India, world’s third-biggest importer of oil. While the crude surged more than 16 percent in the quarter ended December, auto fuels costs rose by up to one percent, according to Bloomberg data. Oil marketers didn’t increase prices ahead of the December elections in Gujarat, Prime Minister Narendra Modi’s home state, bringing down their margins. In comparison, they increased retail prices of auto fuels this quarter even as Brent crude fell nearly 2 percent.
The fall in crude since early January also helped retailers earn more on every litre of fuel sold. The markup on petrol and diesel averaged at Rs 2.8 and Rs 2.9 a litre, respectively, so far compared with Rs 1.9 and Rs 2.2 in the previous quarter.
That’s expected to benefit HPCL and BPCL more as retail sale of fuel contributes nearly 45 percent and 55 percent, respectively, to their operational profit.
While oil prices have fallen this quarter, they are still higher than the average of previous three months. Brent crude, the Asian benchmark, averaged around $67.24 a barrel so far compared with 61.4 in the previous quarter.
Oil refiners maintain an inventory. If the market price falls, refiners that bought the existing stock at higher prices end up selling through retail outlets at lower rates, and vice-versa.
Since the average crude prices are higher this quarter, refiners are expected to earn more since they purchased oil at a lower price. That could give them the third straight inventory gain.
Stable Refining Margins
Singapore gross refining margins, the Asian benchmark, have averaged around $6.9 per barrel so far during the quarter—marginally down from the previous three months but the overall rising trend remained intact. A higher GRM means refiners earn more for processing every barrel of crude.