While continuing to remain weak, gross refining margins (GRMs) will soon reach their lowest levels before rising again, analysts say. The amount refiners earn from turning every barrel of crude oil into refined fuel products, GRMs have dragged down profits of oil marketing companies (OMCs) in FY25.
In the first half of FY25, the benchmark Singapore GRM has averaged only $3.6/bbl, reflecting the effects of a subdued oil demand environment. In the second quarter (April–June) of FY25, state-run Indian Oil Corporation Ltd (IOCL) saw its consolidated net profit steeply fall 75 per cent to Rs 3,528 crore, while BPCL’s and HPCL’s net profits dipped by 73.2 per cent and 90 per cent, respectively.
“However, key product inventories globally remain at the lower to mid-range of the last five years. We anticipate limited downside for refining margins from current levels as we approach the seasonally stronger winter months,” a research note by Motilal Oswal pointed out on Thursday. Elara Securities also expects better GRMs in Q2 on higher availability of Russian crude.
Against the backdrop of weak crude oil prices and a range-bound refining GRM environment, the outlook for marketing margins remains strong, it added. “While OMCs appear to be trading at the higher end of the historical range, street earnings estimates are building in only Rs 3–4 per litre marketing margin. Current margins are above Rs 10 per litre,” it said.
Meanwhile, it stressed that the Centre will not push for a price cut before key state elections in Haryana and Maharashtra in 2024, and Delhi, Bihar, and Uttar Pradesh in 2025. “We believe the risk of a substantial retail price cut for motor spirit (petrol) and high-speed diesel before the upcoming key state elections is overstated. Instead, the central government may urge individual states to reduce state taxes to provide relief to consumers,” the research note said.
First Published: Sep 26 2024 | 8:04 PM IST
