Softening crude may help oil marketing cos cut retail losses
The continued softening of global crude oil prices would result in bringing down the under recoveries of the public sector oil marketing companies (OMCs) for the current fiscal. This, however, may not result in improving the profit margins of these entities. “If the crude prices continue at the current level, the under recoveries on selling petrol, diesel, kerosene and cooking gas below the desired market price could reduce by about Rs 35,000 crore to Rs 1,70,000 crore for the fiscal. “The under recoveries before the price revision in June were estimated to be Rs 2,45,000 crore, which subsequently came down to Rs 2,05,000 crore after factoring in the Government package – price increase and duty reduction,” Mr S.V. Narasimhan, Director Finance, Indian Oil Corporation, told Business Line. Current losses Currently, Indian Oil Corporation is losing Rs 330 crore a day on sale of these products, he said. However, while the softening of crude price would lead to bringing down the revenue loss on the retail front, this would also result in inventory losses leading to a dip in refinery margins for the refineries – integrated as well as standalone. The gross refinery margins for the current quarter could be around $5-6 a barrel for the oil companies.The refinery transfer prices of these products are linked to their prices in the international market, Mr Narasimhan said.“A desirable situation would come only when crude would come down to a $70 level or below and the companies do not need to depend on oil bonds and upstream contributions to maintain profitability,” he added. The Indian crude basket on Monday stood at $112.43 a barrel, down from $113.60 on Friday. The basket had hit the highest for the current fiscal on July 3 at $142.04 a barrel. In the current quarter till August 11, it has averaged $128.84 a barrel, up from the previous quarter’s $118.50.
