Global rating agencies noted that public sector oil marketing companies, Indian Oil, Bharat Petroleum, and Hindustan Petroleum, are under pressure due to rising global crude oil and gas prices, limited domestic fuel price pass-through, and their dependence on imported energy.
Moody’s Investors Service and Fitch Ratings, in separate notes, detailed the impact of the widening West Asia conflict on the margins and credit risks of India’s public sector oil companies as the conflict prolongs.
India imports 88% of its crude and nearly half its natural gas, with 30-55% of supplies passing through the Strait of Hormuz. Strategic petroleum reserves cover just 10 days of consumption, while commercial stocks provide around 65 days, leaving OMCs exposed to supply disruptions.
Margin and credit metric under pressure
Moody’s highlighted that limited domestic price adjustments shift rising input costs onto Indian oil companies, compressing marketing margins and weakening cash flow, particularly during sustained high energy prices.
Fitch said a prolonged Iran-related oil or LNG supply shock could pressure near-term credit metrics, although government backing provides strong support.
Retail fuel prices in India have largely remained unchanged since April 2022, reflecting government influence and OMCs’ dominant market share of nearly 90 per cent of fuel outlets.
The Indian government has directed refiners to maximise LPG output amid supply disruptions in West Asia and to raise domestic LPG prices by Rs 60 per 14.2 kg cylinder.
Companies may see budgetary allocations
Fitch and Moody’s noted that losses from below-market LPG sales may be compensated through budgetary allocations; a prior Rs 30,000 crore package for fiscal 2024-25 is being disbursed in monthly instalments.
“The companies will bear rising input costs from higher energy prices without corresponding increases in selling prices because the government’s influence over retail pricing prevents timely cost pass-throughs.”
Moody’s Ratings said that when international prices rise, procurement and refining costs increase, while OMCs’ realised prices for key fuels do not adjust in line with costs. This gap compresses marketing margins and weakens operating cash flows, particularly during periods of sustained high energy prices.
“In the event of a prolonged disruption, we expect the government will strike a balance between maintaining adequate financial profiles at OMCs alongside its responsibilities for managing domestic inflation and fiscal policy, as demonstrated in the past, which mitigates risks,” Fitch said.