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As international crude oil prices dipped below $80 per barrel for the first time since January, ICICI Securities on Wednesday said that the decline will help soften the marketing losses of the oil marketing companies (OMCs) — Hindustan Petroleum Corporation, Indian Oil Corporation and Bharat Petroleum Corporation.
The brokerage said that the average loss of diesel, which stood at ₹10.5 per litre so far in the October-December quarter, will reduce to ₹4.4 a litre as on December 6.
“As per our understanding, OMCs witnessed a marketing loss of ₹1.2 a litre on petrol and ₹13.4 per litre on diesel in Q2 FY23. We estimate an average profit ₹8 per litre on petrol and an average loss of ₹10.5 a litre on diesel in Q3 FY23-till date (TD). With the decline in crude prices, we expect the profit on petrol to increase further (to ₹10 a litre) and losses on diesel to narrow (loss of ₹4.4 a litre as on December 6),” it added.
Margin to improve
ICICI Securities said it expects the declining losses to help improve the marketing margins in the Q3 FY23 quarter.
On the refining front, average Singapore GRMs in Q2 FY23 were at $7.1 per barrel and currently are trading at around $5.39 a barrel in Q3FY23-TD. Currently, the average cracks on petrol are at around $4.4 per barrel, down $4.6. For diesel, the average cracks are at around $41 per barrel, up $5.8 q-o-q. Owing to the fall in GRMs, the brokerage expects inventory losses for the refining segment.
Cooling oil prices
Crude oil prices have fallen sharply from $95 per barrel seen in the first week of November to around $79. The decline in crude prices was on account of several reasons, from weak demand in China (its PMI fell to a seven-month low of 48), the EU price cap on Russian oil, to uncertainty on the direction of Federal Reserve’s rate hike.
The EU and G7 nations have agreed on a price cap of $60 per barrel for seaborne Russian oil. The correction in prices would have a dual impact on OMCs (although overall positive impact).
“Firstly, OMCs would incur one-time inventory loss (on GRMs front) due to the impact of falling oil prices on existing inventory. Secondly, and more significantly, we expect the performance of the marketing segment to improve owing to lower losses on the diesel front,” ICICI Securities said.
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