OMCs benefit from high margins
Mint, Delhi   28-Aug-2020

Higher market margins have helped oil marketing companies, including Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL), offset weaker fuel sales and historically low refining margins in the June quarter, helping them post strong operating profits.

“Marketing margins of the three oil marketing companies (OMCs) increased significantly during Q1FY21 and boosted Ebitda compared with Q4FY20," said Fitch Ratings in a 24 August note. Ebitda is earnings before interest, tax, depreciation and amortization, and is a measure of profitability.

Marketing margins for oil companies rose despite a hike in duty on auto fuels, as the fall in crude oil prices was not fully passed on to consumers. Year-to-date, Brent crude has fallen 30.71% to $45.73 a barrel.

Though oil company officials declined to comment on the marketing margin they are earning on fuel sales, according to an ICICI Securities report on 5 August, OMCs’ net marketing margin in CY19 and first half of 2020 was at ?2.6-4.6 per litre, against a modest ?1 per litre during FY15-18.

Over the June quarter, the OMCs were hurt by historically low gross refining margin (GRM)—the difference between the value of the refined products produced against the cost of crude oil.

While IOCL saw refining and marketing volumes decrease by 25% in April-June compared to the preceding quarter, HPCL’s marketing volume fell 20% and its refining throughput dropped 13% due to falling demand. BPCL’s refining throughput and marketing volumes fell by 39% and 26%, respectively.

After showing signs of a recovery, India’s fuel demand dipped 11.7% year-on-year in July, according to official data.