OMCs’ margin seen rising 36% to Rs 3 per litre in FY21

With retail prices of petrol and diesel falling at a slower pace than the drop in rates recorded by the Indian basket of crude, state-run oil marketing companies (OMCs) are seen to earn a profit of Rs 3 on every litre of fuel they will sell in FY21 — 36% higher than the margin recorded in the previous fiscal, analysts pointed out. Rising auto fuel margins fares well for OMCs as fuel consumption gradually rises with the relaxation of sporadic lockdowns.

While the price of the Indian basket of crude has dropped by 11% since mid-July to the current rate of $38.8/barrel, the base price of diesel — what OMCs charge dealers without taxes — has decreased 1.3% to Rs 27.15/litre in the same period. The retail price of diesel paid by the end consumer has, however, slipped 10.6% since July 15 to Rs 72.56/litre on Wednesday in the national capital, as the Delhi government on July 30 slashed VAT on the fuel from 30% to 16.8%, which translated into a price cut of Rs 8.38/litre.

Current diesel price include the Rs 31.83/litre excise duty paid to the Centre and the Rs 10.66/litre paid to the Delhi state government. Retail diesel price in Delhi is hovering around the high charges of November 2018, although the current rate of crude is around half of those levels.

“Recent global auto fuel price correction has meant net auto fuel marketing margins are likely to surge to over Rs 4/litre on September 16 from Rs 2.23/litre a day ago,” analysts at ICICI Securities said. Auto fuel margins are calculated on the average prices of gasoline and diesel in the international market which is reset once every 15 days.
Higher fuel margins helped OMCs absorb the shock of inventory losses stemming from falling crude oil prices earlier in the fiscal. Net profit of Indian Oil Corporation fell 47% annually to Rs 1,910.8 crore in Q1FY21 as crude prices touched ultra-low levels of $16/barrel, lowering the valuation of the crude oil stocked by the company, which led to inventory losses of Rs 3,196 crore. However, profit would have been lower had its gross refining margin not increased 88% y-o-y to $4.27/barrel due to higher retail prices.