By Rajat Mishra
Though international crude prices have fallen by 25% since the end of March 2022, state-run oil marketing companies (OMCs) have kept retail prices of auto fuels on hold since May 2022, in a bid to recoup the losses incurred in the last two quarters, when crude prices remained at elevated levels. Analysts expect these firms not to cut rates in the near term either. They believe that it may take two-three quarters for the three OMCs — IOC, BPCL and HPCL — to offset losses incurred in the past quarters.
“Earlier, OMCs were making losses on diesel and petrol sales. Over the last few weeks, they have been making profits on petrol sales, though they have not yet started making substantial profits on diesel sales,” Prashant Vashisht, VP and co-group head, Icra, said. According to a report by Fitch, the worst may be over for the OMCs after a significant increase in debt in the second quarter of FY23 due to weak Ebitda from marketing losses, a depreciating rupee and high working capital cost.
According to Vashisht, at the current level of crude oil prices, OMCs are recovering around Rs 14 per litre on the sale of petrol. In March, when international crude oil prices were high, OMCs were losing Rs 11-12/litre for both petrol and diesel. In June, under-recoveries were higher at Rs 17/litre for petrol and Rs 24/litre for diesel.
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Union minister of petroleum & natural gas Hardeep Singh Puri, a few days back, on being asked whether a price reduction was in the offing, said, “OMCs still have under-recoveries on diesel.” However, Vashisht believes that if the price of crude oil stayed at around the current level for some time, the OMCs will take the next two-three quarters to recover the losses borne by the companies.
“Currently, OMCs are not losing money on the petrol side, they are losing some money on the diesel side, so if prices come down a bit, the under-recovery will tend to go down. Even though prices have moderated, because of huge losses incurred by OMCs, there are no commercial reasons for them to go for a cut,” one analyst said on the condition of anonymity. However, another analyst believes that the reduction in retail price by the OMCs is not on the horizon, as the prices have not hit a low for long time; if the prices hover around the same range, Opec will intervene by cutting the production to boost prices.