According to a report by Nomura, oil marketing companies (OMCs) in India, including Hindustan Petroleum Corp Ltd. (HPCL), Bharat Petroleum Corp Ltd. (BPCL), and Indian Oil Corporation (IOC), are grappling with declining profitability in the July-September quarter due to a significant drop in marketing margins. The report highlights that HPCL will be the most affected among these state-run refiners due to its larger share in the marketing segment.

The blended marketing margin, which reflects the profit earned from selling fuels at petrol pumps, has sharply declined to a negative Rs 4.7 per litre as of the week ending September 24, 2023, according to the Nomura report. This decline is attributed to the increase in crude oil prices and product spreads, while retail fuel prices have remained unchanged.

As a result, OMCs are now experiencing under-recoveries of Rs 7.4 per litre on the sale of auto fuels, with blended marketing margins deep in the red at a negative Rs 5.3 per liter based on current crude and product prices.

For diesel, marketing margins dropped to a negative Rs 5.7 per litre, and petrol margins fell to a negative Rs 1.7 per litre during the same period.

Nomura also anticipates that refining margins for these companies will remain high in the coming months, given healthy global oil demand and stretched supply-side inventories. Large refineries worldwide have announced planned maintenance activities, tightening refined product markets in the December quarter.

Reliance Industries, BPCL, and IOCL are among the refiners planning shutdowns. Nomura has maintained its ‘buy’ rating on Reliance Industries, citing the company’s advantageous crude oil sourcing and its ability to benefit from a robust refining environment.

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