High crude oil prices erode Indian OMCs' fuel marketing margins

Rising global crude prices have eroded fuel marketing margins for Indian OMCs, pushing diesel retail into deeper losses. However, a sharp improvement in refining economics, driven by tight global supply, is helping to support overall profitability.

Rising global crude oil prices have sharply eroded the retail fuel marketing margins of India's oil marketing companies (OMCs), even as a strong surge in refining crack spreads continues to support overall integrated profitability, according to the latest weekly sector update by Equirus Securities.

Pressure on Fuel Marketing Margins

The report said Brent crude climbed 5.4 per cent week-on-week to USD 88.1 per barrel, while the Indian crude basket rose 2.5 per cent to USD 81.4 per barrel. The increase in crude prices weighed on fuel marketing margins, particularly diesel, where retail losses deepened. Highlighting the pressure on fuel retailing, the report said, "Petrol marketing margin fell sharply WoW (-42.1%) to Rs 4.5/lit, while diesel MM slipped further into red to Rs-20.4/lit (from Rs-15.4/lit last week)."

Strong Refining Margins Offer Relief

However, the deterioration in retail margins was partly offset by a sharp improvement in refining economics. Gasoline crack spreads increased 15.8 per cent week-on-week to USD 27.3 per barrel, while gasoil and jet fuel cracks climbed to USD 65.2 per barrel, reflecting continued tightness in global refined product markets. According to the report, "Gasoline crack rose 15.8 per cent WoW to USD 27.3/bbl (up 3.4 over 3M) and remains ~69 per cent above last 1 yr avg. level; Gasoil crack rose 12.5 per cent WoW to USD 65.2/bbl and is ~99 per cent higher than 1 yr avg., diesel continues to lead product strength also on back of Russian exports ban."

Integrated Margins Remain Elevated

Despite weaker retail fuel earnings, integrated margins, which combine refining and marketing performance on a 1:1 basis, remained elevated compared with historical levels. Petrol integrated margins eased 4.3 per cent week-on-week to Rs 21 per litre, while diesel integrated margins declined 2.5 per cent to Rs 19.1 per litre. Even so, these margins remained significantly above both three-month and six-month averages. The report said, "Integrated margins (assuming 1:1 refining: marketing) eased WoW (petrol -4.3 per cent to Rs 21.0, diesel -2.5 per cent to Rs 19.1) but remain well above 3M levels (petrol +58.7 per cent, diesel +34.6 per cent) and 6M levels (petrol +108.9 per cent, diesel +239.1 per cent)."

Global Factors Bolstering Refiners

Equirus also noted that robust refining margins are being driven by constrained global supplies of refined products, supported by Russia's diesel export restrictions and geopolitical tensions in West Asia. It said elevated diesel cracks should continue to provide earnings support to refiners over the next one to two quarters, although such exceptional margins are likely to normalise once refinery utilisation improves and product inventories are rebuilt. (ANI)

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