Against the backdrop of weak crude oil prices and a range-bound refining margins environment, analysts see marketing margins of the state-owned oil marketing companies remaining strong. Additionally, there is headroom for the downward revision of retail fuel prices if crude prices remain stable at current levels, they say.
ICRA estimates that the OMCs’ net realisation was higher by ~Rs.15 per litre for petrol and around Rs.12 per litre for diesel vis-à-vis international product prices in September 2024. “The retail selling price of these fuels have been unchanged since March 2024 and there appears to be headroom for their downward revision by Rs. 2-3 per litre, if crude prices remain stable,” said Girishkumar Kadam, Senior Vice President and Group Head – Corporate Ratings, ICRA.
Ahead of the key state elections, analysts at Motilal Oswal believe that the central government may urge individual states to reduce state taxes to provide relief to consumers. 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, it said.
According to the brokerage, the Singapore gross refining margin in the first half of 2025 till date has averaged only $3.6 per barrel, reflecting the effects of a subdued oil demand environment.
The International Energy Agency has reduced its global oil demand estimate to 900,000-950,000 barrels per day in 2024 and 2025. According to the IEA, global oil demand growth continues to slow down, with an increase of 800,000 barrels per day in the first half of 2024, amid muted demand from China, world’s top consumer of crude oil.
“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,” Motilal Oswal said.
The moderation in Singapore GRMs is mainly on account of weak demand from China due to rising electric vehicle (EV) sales, muted industry demand, and real estate downturn, ICRA notes. Further, demand in Europe has also been subdued due to weak industrial activity and a structural shift in vehicle fleet towards EVs.
As per analysts, marketing gain of Rs 1 per litre on petrol and diesel would compensate for the gross refining margin loss of $0.9 per barrel for the domestic refining and marketing industry. Despite a moderation in the refining margins, improvement in the marketing margins is expected to result in healthy earnings for the OMCs in the first half of FY25.
“The OMCs reported healthy operating margins in FY24, recouping the losses incurred during FY23. Despite moderation in the GRMs (gross refining margins), the improvement in marketing margins is likely to result in the OMCs maintaining their profitability in H1 FY25,” Kadam said”. “However, inventory losses due to a sharp decline in crude prices could impact profitability to an extent in Q2 FY25. Further, the profitability for standalone refiners would take a hit with the declining GRMs.”
Crude prices have witnessed a sharp decline in the last few months, primarily due to weak global economic growth and high US production. The Organisation of Petroleum Exporting Countries has pushed the rollback of its production cuts by two months to combat the declining prices.
Motilal Oswal estimates oil prices to be around $75 per barrel in both FY25 and FY26. “But we believe risks to a lower oil price curve continue to mount given the strong non-OPEC supply response in 2025 and beyond.”
