With falling crude oil prices, the net marketing margins of oil marketing companies (OMCs) have improved drastically in the last two months, given the refinery transfer price (RTP) has fallen, and the healthy trend has persisted over most parts of the current quarter. However, finances of the OMCs \u2014 Indian Oil, BPCL and HPCL \u2014 are expected to remain under pressure due to various factors. A steep fall in RTP is a result of crude oil prices \u2014 which affect international product prices \u2014 softening from the highs of $85-plus per barrel in early October to around $50 now. As per a recent report by ICICI Securities, the net fuel marketing margin \u2014 profit made by refiners due to mark-up at which fuel is sold to dealers minus marketing cost \u2014 turned from a negative Rs 1.31 per litre on November 15 to a positive Rs 2.39 per litre on November 16 due to an estimated steep fall in RTP. The OMCs did not increase prices during the April-May period. Refiners use rolling 15-day price of petroleum products in the international markets to arrive at cost of fuel daily using a formula which includes a trade parity price. Various charges such as BS premium, inland freight and delivery charges as also marketing costs and margins of OMCs are added to the TPP \u2014 which is also the RTP or the price at which the refiners sell products to OMCs \u2014 to find the price to dealers. While ICICI Securities expects the current level of marketing margin to fall as OMCs pass on benefit to customers, \u201cAuto fuel net margin may average a healthy around Rs 1 per litre in Q3FY19, despite a weak start to the quarter, if margins sustain at current levels throughout the quarter.\u201d While improved margins should boost the finances of OMCs in the current quarter, a few factors are expected to keep up the pressure. Moody's Investors Service in its outlook for FY19 noted that \u201cdownstream companies\u2019 increase in capital spending and dividend payments will keep free cash flow negative.\u201d OMCs are at present in the process of upgrading their refineries to comply with BS VI norms, which will require massive capital expenditure. The OMCs have spent around 68% of the targeted capital expenditure of Rs 38,687 crore for FY19 by the end of October. Indian Oil and HPCL executives in the post-September quarter result interaction said there will be shutdown in all refineries next year to hook up to BS VI. However, these will be coordinated short breaks among the refiners and spread out so that there is no shortage of fuel. A coordination committee including officials from the ministry of petroleum and natural gas has been formed for the refinery shutdown programme. While OMCs already supply BS VI fuel in Delhi, the nationwide roll-out of the higher and cleanest grade of fuel available across the world is slated for April 2020. Another factor affecting profitability of OMCs in the December quarter will be the impact of absorbing Rs 1 for each litre of diesel and petrol sold. To cool down the skyrocketing fuel prices, the government asked OMCs to absorb Rs 1 for each litre of fuel sold despite the prices being deregulated. Moody\u2019s said the \u201cgovernment\u2019s fuel pricing policy to hurt earnings of downstream companies\u201d. HPCL CMD MK Surana had earlier said the impact of the government\u2019s move will be visible in the third quarter. India\u2019s largest retailer Indian Oil will see an impact of Rs 2,200 crore in the second half of the financial year, according to company chairman Sanjiv Singh. Indian Oil in particular will be buying back shares worth Rs 4,435 crore as the government is woefully short of its disinvestment target. As on date, the government has received Rs 34,000 crore as disinvestment proceeds compared with a target of Rs 80,000 crore for FY19. Moody\u2019s believes that this is one more factor to monitor in the remaining months of the current financial year. While lower inventory gains and higher foreign exchange losses affected the September-quarter earnings of all the three OMCs, operating profits of these companies dropped by at least one-third. The Ebitda fell by 46% for Indian Oil, 38% for BPCL and 34% for HPCL in the September quarter.