The One Thing That Could Save Indian Oil, HPCL, BPCL In The Second Quarter
A droplet of fuel falls from a fuel nozzle as an employee prepares to refuel an automobile. (Photographer: Simon Dawson/Bloomberg)  

The One Thing That Could Save Indian Oil, HPCL, BPCL In The Second Quarter

Watch | Why Oil Refiners Expect To Report Strong Q2 Earnings

India’s top three oil marketing companies may report higher profit in the quarter ended September even as possible inventory losses and stalled consumption offset gains from rising margin.

Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. reported a 55 percent sequential drop in their combined net profit at Rs 5,482 crore in the three months through June, according to BloombergQuint’s calculations. That was mostly because of a 20 percent decline in crude oil prices in the last week of the first quarter.

Brent crude has averaged lower in the second quarter, too, as production rose and global demand fell. Generally, a fall in crude oil price leads to inventory losses as oil marketers that bought stock at higher prices sell through retail outlets at lower rates.

To be sure, crude oil prices surged briefly after explosive drones cut Saudi Arabia’s oil production by half, but they remained lower for most part of the quarter.

Falling domestic consumption of fuel in the second quarter also poses a challenge. That was led by a decline in consumption of petrol, diesel, petcoke and kerosene amid a slowing economy.

Still, oil marketers are expected to report higher gross refining margin, or what they earn for processing every barrel of crude into fuel, in the July-September period. The Singapore GRM, or the Asian benchmark, jumped 86 percent over the previous quarter—the most in at least eight years—to average around $6.5 a barrel in the three months ended September ahead of the implementation of new shipping fuel rules and due to refinery shutdowns.

Besides, unlike the last quarter, petrol and diesel prices rose more than global crude in the July-September period. That’s expected to help Indian Oil, BPCL and HPCL earn higher gross marketing margin on sale of every litre of petrol and diesel.

On an average, gross marketing margin—the mark-up earned on sale of every litre of retail fuel—stood at Rs 3.4 a litre for petrol and Rs 3.7 a litre for diesel in the quarter ended September. That may benefit HPCL and BPCL more as retail sale of fuel contributes nearly 60 percent and 40 percent, respectively, to their operational profit, according to data compiled by BloombergQuint.

Reluctance to raise prices of petrol and diesel during the general elections earlier this year had restricted oil marketers to earn higher marketing margin in the first quarter.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.