Lower crude oil prices aided by global banking turmoil to benefit OMCs

OMCs have booked huge losses in the first half of the current financial year (FY23) on account of high international crude oil prices.

Indian start-ups have been hit by the recent collapse of several global banks, but the banking turmoil comes as a piece of good news for state-run oil marketing companies (OMCs), as the price of crude oil slumped to the lowest in 15 months last week.

Shares of the three OMCs — Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) — traded in the green last week.

Due to the deteriorating condition of the banking system globally, US benchmark Brent crude hit $72 per barrel — the lowest since December 2021 — on March 16. The downward movement in crude prices was triggered by the collapse of US-based Silicon Valley Bank (SVB) and further slumped with the failure of Signature Bank. Other big banks including Silvergate Capital and Credit Suisse followed suit.

Analysts said the decline in crude oil prices would translate into better marketing margins for the oil marketers.

Better marketing margins

OMCs have booked huge losses in the first half of the current financial year (FY23) on account of high international crude oil prices. However, the oil giants reported profits in Q3 with the moderation in oil prices. The recent decline could result in a healthier quarter for the companies.

In a recent report, Dayanand Mittal, Research Analyst, JM Financial, said thanks to the fall in diesel cracks to $20 per barrel over the last few weeks from $35-40 per barrel in the last three-four quarters, combined with the slide in Brent crude prices to under $75 per barrel, the gross marketing margin (GMM) of OMCs has jumped to Rs 11.1 per litre on diesel and Rs 8.7 per litre, from the earlier Rs 3.5 per litre.

HPCL is expected to benefit the most from healthy marketing margins because of its larger dependence on marketing.

OMCs did not respond to queries by Moneycontrol till the time of publishing.

Benefit to consumers?

But is the good news only limited to the oil companies or will it provide relief to consumers as well? Retail fuel prices are not expected to be changed in the near term as the companies had left prices unchanged when global prices had skyrocketed.

CNBC-TV18 reported that prices of petrol and diesel in India are unlikely to see a cut anytime soon as OMCs have to recover accumulated losses to the tune of Rs 18,000 crore due to high crude prices in earlier quarters, a government official said on the condition of anonymity.

OMCs have not revised petrol and diesel prices for at least six months now.

Deepak Jasani, Head of Retail Research, HDFC Securities, said, “The OMCs are not in a hurry to cut prices of petrol and diesel because they have booked losses in the last nine months. But eventually they will have to cut prices, maybe in April or May.”