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OMCs profit soar; hope for fuel price cut rises

The profit of these oil companies can be attributed to a recovery in fuel marketing margins and better refining margins.

Screenshot 2024 02 18 090649NEW DELHI: Would the public sector oil marketing companies (OMCs) finally bite the bullet and go for a fuel price cut, especially after churning out healthy profits for three quarters in row in FY24?

Oil marketing companies (OMCs) like Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL) consistently churned profits over the last three quarters.

In the third quarter of FY 2023–24 alone, these companies collectively reported a profit of Rs 11,774 crore. Their combined profits over the past three quarters have surpassed Rs 69,000 crore, exceeding their annual earnings from pre-oil crisis years (2020-23).

The profit of these oil companies can be attributed to a recovery in fuel marketing margins and better refining margins. The decision by the oil companies to freeze petrol and diesel price revisions, despite a fall in input crude oil prices, helped in recovering losses incurred when rates were high in 2022–23. This resulted in losses when input costs were higher and profits when raw material prices were lower.

Now, the big question arises: will the companies reduce the price of transport fuel in the coming days? Petroleum Minister Hardeep Singh Puri reportedly stated that the companies incurred losses when crude prices were high, and they are still in the process of recovering. This sentiment was echoed by industry experts too.

The minister, on the sidelines of India Energy Week, said that the government does not dictate prices, and the oil companies make their decisions considering all economic aspects. “They (the oil companies) had losses when they voluntarily decided not to raise prices (despite oil prices going up)… The expectation would be to start price revision if the trend continues in the fourth and last quarter of the current fiscal year ending March 31,” said the minister.

Prashant Vasisht, Senior Vice-President and Co-Group Head, ICRA Ltd, believes that if crude prices remain under $80 per barrel, there is room for a cut in auto fuel prices. On the other hand, Gaurav Moda, Partner and Energy Sector Leader at EY India, thinks that a reduction in oil prices is currently not possible due to the volatile global scenario. However, he suggests that companies may consider cutting prices in the next quarter or so.

Financial report

In FY2024, oil companies experienced a positive turn, with significant profits recorded in the last three quarters or nine months. The profits made in the last nine months surpass the company’s entire fiscal year earnings for FY23.

For instance, Indian Oil Corporation (IOCL), India’s largest refinery, posted a net standalone profit of Rs 34,781 crore in April-December period of FY24, compared to its full year profit of only Rs 8,242 crore in FY23. In the corresponding nine months in FY23, the company was sitting at a cumulative loss of Rs 1,816 crore.

Bharat Petroleum Corporation Ltd recorded Rs 22,449 crore profit in the first nine months of the current financial year compared to Rs 1,870 crore full year profit in the previous financial year.

Hindustan Petroleum Corporation Ltd’s standalone net profit in the first nine months of FY24 is Rs 11,851 crore compared with a loss of Rs 8,974 crore in FY23. In the first nine months of FY23, the company had posted net loss of Rs 12,196 crore.

Analysts believe that these companies are expected to continue making profits in the March quarter. As the companies are profitable, the finance ministry has not provided any budgetary equity support to them in FY25. Moreover, the government has reduced capital allocation for energy transition from Rs 30,000 crore in the last budget (for the year 2023) to Rs 15,000 crore in the recent interim budget for FY2025.

Loss-making Period

Oil companies in India collectively posted a net loss of Rs 21,201.18 crore during April–September 2022 due to high international crude prices caused by the Russia–Ukraine war. This occurred despite receiving Rs 22,000 crore in government aid for LPG subsidies over the previous two years. In March 2022, crude prices even reached a 14-year high of nearly $140 per barrel. However, prices began to decline due to weaker demand from China, a major importer, and concerns about a global economic slowdown.

This year, despite facing volatility from events like the Red Sea crisis, the Russia-Ukraine conflict, or production cuts from OPEC countries, the price of oil in the international market remains relatively stable. Crude prices generally hover around the $80 per barrel mark.

Earlier, petroleum minister Hardeep Singh Puri mentioned that a crude oil price of around $80 per barrel, or slightly lower, would be beneficial for countries. He further emphasised at the ADIPEC oil and gas conference in Abu Dhabi that a price of $100 per barrel is not in the interest of either producers or consumers. Rising crude oil prices could potentially lead to widespread economic disruption and hardship in many parts of the world.

OMCs like IOCL, BPCL, HPCL churned profits over last 3 quarters

Better marketing, refining margins

Profit of these oil companies can be attributed to a recovery in fuel marketing margins and better refining margins. Oil firms freezed petrol and diesel prices, despite fall in input crude prices, helped recover losses incurred when rates were high in 2022–23

Boost in profit in 9-month of FY24

In FY24, oil companies experienced a positive turn, with significant profits in the last three quarters or nine months. Profits in the last nine months surpass the company’s entire fiscal year earnings for FY23

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