Rating agency ICRA has reported that marketing margins for Indian oil marketing companies (OMCs) have improved recently due to a reduction in crude oil prices. This improvement creates potential for a downward revision of retail fuel prices, provided crude prices remain stable. ICRA’s outlook for the refining and marketing sector remains “Stable.”
Girishkumar Kadam, Senior Vice President and Group Head of Corporate Ratings at ICRA, stated that OMCs’ net realisation was approximately ₹15/litre higher for petrol and ₹12/litre higher for diesel compared to international prices in September 2024 (up to September 17). Retail prices for petrol and diesel have remained unchanged since March 2024, when they were reduced by ₹2/litre. According to ICRA, there is potential for a further reduction in prices by ₹2-3/litre if crude prices remain steady.
Crude oil prices have dropped in recent months, largely due to sluggish global economic growth, higher production in the US, and the decision by OPEC+ to delay production cuts by two months in response to falling prices.
Additionally, the Singapore Gross Refining Margins (GRMs) moderated to approximately $4 per barrel in the first half of FY2025, driven by a reduction in crack spreads due to increased product output and lower demand. Weak demand from China, attributed to rising electric vehicle (EV) sales, muted industrial activity, and a downturn in the real estate sector, has been a significant factor. European demand has also been subdued due to weak industrial activity and the ongoing shift towards EVs.
ICRA highlighted that a marketing gain of ₹1/litre on petrol and diesel could offset a GRM loss of $0.9/bbl for the domestic refining and marketing sector. Kadam added that OMCs reported healthy operating margins in FY2024, recovering from losses incurred in FY2023. Despite the moderation in GRMs, the improvement in marketing margins is expected to support the OMCs’ profitability in the first half of FY2025. However, inventory losses from the sharp decline in crude prices could impact profitability in the second quarter of FY2025. Standalone refiners are expected to face profitability challenges due to declining GRMs.
ICRA’s outlook on the refining and marketing sector remains “Stable.” Petroleum, oil, and lubricants (POL) consumption in India saw year-on-year growth of 5% in FY2024 and is projected to grow by 3-4% in FY2025, driven by economic growth, increasing mobility, and rising air travel. The OMCs have also planned significant capital expenditure in the refining segment, with domestic refining capacity expected to increase from 256.8 million metric tonnes (MT) in March 2024 to 306 million MT over the next three to four years to meet rising demand and export opportunities. ICRA anticipates that the capacity utilisation of public sector and private refiners will remain robust in FY2025.