With healthy marketing margins, OMCs can cut auto fuel prices by Rs 2-3/litre: ICRA

Crude prices have witnessed a sharp decline in the last few months because of various reasons including weak global economic growth and OPEC+ pushing production cut by another two months, according to the agency.

Oil marketing companies have healthy marketing margins and therefore have headroom to reduce auto fuels by Rs 2-3 per litre, if crude remains at current levels, according to the rating agency ICRA.

According to the agency, the marketing margins on retail sales of auto fuels for the Indian oil marketing companies (OMCs) have improved in recent weeks with the reduction in crude prices.

In fact, the agency's estimates show that OMC's margins are much higher than what they are internationally in September 2024. Meanwhile, retail prices have remained unchanged since March 2024.

Also read: OMCs to decide on fuel price cut if crude stays low for long: Petroleum Secy

Girishkumar Kadam, Senior Vice President and Group Head - Corporate Ratings, ICRA, said, “ICRA estimates that the OMCs’ net realisation was higher by ~Rs 15/litre for petrol and ~Rs 12/litre for diesel vis-à-vis international product prices in September 2024 (till September 17). The retail selling price (RSPs) of these fuels have been unchanged since March 2024 (Rs 2/litre was reduced on petrol and diesel on March 15, 2024) and there appears to be headroom for their downward revision by Rs 2-3/litre, if crude prices remain stable."

Crude prices have witnessed a sharp decline in the last few months, primarily due to weak global economic growth and high US production, while the OPEC+ has pushed the rollback of its production cuts by two months to combat declining prices, said the press statement from the agency.

The Singapore GRM, which measures the difference between price of crude oil and the selling price of the fuels such as a petrol and gas, has seen a significant moderation in the first half of 2025, noted ICRA. But, a marketing gain of Rs 1/litre on petrol and diesel would compensate for the GRM loss of 0.9 $/bbl for the domestic refining and marketing industry, it added.

Commenting on the OMCs’ profitability, Kadam said: “The OMCs reported healthy operating margins in FY2024, recouping the losses incurred during FY2023. Despite moderation in the GRMs, the improvement in marketing margins is likely to result in the OMCs maintaining their profitability in H1 FY2025”. However, inventory losses due to a sharp decline in crude prices could impact profitability to an extent in Q2 FY2025. Further, the profitability for standalone refiners would take a hit with the declining GRMs.

ICRA’s outlook on the refining & marketing sector remains Stable, said the statement.

"Petroleum, oil & lubricants (POL) consumption in India witnessed YoY growth of 5% in FY2024 and is likely to witness a 3-4% growth in FY2025, driven by economic progress, increasing mobility and air travel. The OMCs have planned a significant capex in the refining segment. The domestic refining capacity is expected to increase to 306 million MT over the next three to four years from the current capacity of 256.8 million MT as of March 2024 to support the increased consumption and exports. ICRA expects the capacity utilisation of the PSU and the private refiners to remain healthy in FY2025."