Transportation fuel demand shows signs of improving to pre-pandemic levels from FY23 as visible from petroleum product sales for the OMCs (oil marketing companies) which increased between 8% – 11% during the nine months ended December of fiscal 2021-22 from a year earlier as demand rebounded from a pandemic-induced fall.
However, demand was still 5% – 7% below pre-pandemic levels in 9MFY20. Fitch Ratings is of the view that OMCs will generate steady marketing margins in FY23 as they continue to pass on changes in crude oil prices to consumers, a Fitch Ratings study showed.
However, record high retail-fuel prices may limit the extent to which the changes are passed on, should crude oil prices continue to rise.
The OMCs incurred marketing inventory losses in 3QFY22, driven by the excise duty cut in November 2021, as the fuel inventory in their pipelines and retail outlets were priced at higher rates.
According to the World Oil Outlook 2021, flagship publication by Organisation of Petroleum Exporting Countries (OPEC), oil demand in India is expected to reach around 11 million barrels per day by 2045 as compared to about 4.9 million barrels per day in 2021.
According to Fitch Ratings, strong refining margins and the likely inventory gains arising from increasing oil prices are expected to offset the moderate marketing margins of Indian oil marketing companies (OMCs) and continue to support their standalone credit profiles (SCP).
With the Indian economy continuing to recover, diesel and gasoline refining margins are likely to remain healthy in the near term, although diesel spreads may narrow a little as the peak winter heating demand reduces, the report says.
Improving demand and a rebound in product spreads, along with inventory gains, drove up Indian Oil Corporation’s gross refining margin to $8.5/barrel in the first nine months of the financial year ending March 2022 (9MFY22) from $3.0/barrel in 9MFY21 and that of Bharat Petroleum Corporation’s to $6.8/barrel from $2.9 in 9MFY21.
The other downstream firm Hindustan Petroleum Corporation Limited saw its gross refining margin rising to $4.5/barrel from $2.4/barrel, according to Fitch. The improvement was smaller than its peers’ as it undertook a planned shutdown to expand its Mumbai refinery and stabilisation took time but the refinery is now operating at its expanded capacity.
