Petrol, Diesel Prices Hiked

Oil Marketing Companies raised retail auto fuel prices by Rs.0.8/liter, the hike comes after a duration of about 4.5 months and at a time when margins have trended deeply in the red in recent weeks following a rally in crude prices. The oil marketing companies ( OMCs) holding back on retail price hikes following the conclusion of the elections was disappointing given the impact on margins, however, price hikes should provide some marginal respite if the trend sustains over the coming period. 

At $100-120/bbl, the oil companies will be able to return back to their normative marketing margins of Rs.2.7/ltr over 17-31 days if the pace of Rs.0.8/ltr sustains on a daily basis; the oil companies will need to raise diesel prices by Rs.13.1-24.9/ltr and Rs.10.6-22.3/ltr on gasoline at an underlying crude price of $100-120/bbl. If the crude price sustains at levels of $120/bbl, Oil Marketing Companies will find it difficult to be able to return back to their normative marketing margin without any support from the Central government in the form of excise duty cuts.

The blended marketing margins are estimated to average at Rs.0.7/ltr in Q4FY22 if the current rate of price hikes sustains till the end of the quarter. Marketing margins for the quarter are likely to be significantly lower QoQ in comparison to Rs5.3/ltr in 3QFY22. 

Refining margins have been volatile in recent weeks. The Indian margins are ranging between $1-21/bbl reflecting concerns on demand destruction due to the spread of Covid-19 across China, other Asian and EU countries, and higher cracks for petroleum products (mainly middle distillates) owing to concern on a possible supply shock as the EU considered bans on Russian energy supplies. 

If the pandemic comes back to its ugly head yet another time and leads to another round of widespread restrictions and in the worst-case lockdowns, risks to an overall positive refining outlook are observed. However, large-scale permanent closures (~2.7mn b/d) announced by several refiners, will ease the supply situation. The EU will not be able to approve a complete ban on Russian energy supplies, given its significant dependence on Russia.

The estimated FY2023 refining margins for BPCL are $5.5/bbl, for HPCL are $4.5/bbl and $5.5/bbl for IOCL, and FY2024 estimated refining margins are $5.7/bbl for BPCL, $4.9/bbl for HPCL and $5.8/bbl for IOCL, and marketing margins of Rs.3/liter on auto fuels.