What Brent Crude Below $66-A-Barrel Mark Means For Oil Marketers
A fall in Brent crude prices is expected to boost the marketing margin of oil retailers.
So far in November, the margin on sale of every litre of petrol and diesel jumped more than twofold over last month, according to BloombergQuint’s calculations. Hindustan Petroleum Corporation Ltd. is likely to be the biggest beneficiary of higher gross marketing margin as it contributes the most to the company’s overall operating income.
Shares of oil marketers jumped 14-41 percent as the Asian benchmark declined more than 20 percent from its high.
“The steep fall in crude prices eased out the pressure on the marketing business for the oil retailers,” Sudeep Anand, head of institutional equity research at IDBI Capital, said. “We have seen a rise in the marketing margin, which led to a rise in valuations.”
This comes as a relief at a time the government asked the oil marketing companies to absorb up to Re 1 on every litre of petrol and diesel to cushion consumers from rising crude prices, raising concerns on the sustainability of the gross marketing margin.
Inventory Losses Likely
But the fall in prices may lead to inventory losses for oil refiners. That’s because if market price of oil falls, refiners that bought stocks at higher prices sell them through retail outlets at lower rates and vice-versa.
In the past, whenever crude prices averaged lower, oil marketing companies reported inventory losses.