India's oil marketing companies (OMC) -- Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) -- reported a surge in the third quarter of FY 2021. This shows improvement among OMCs with sustained strength of marketing margins (MM) and recovering demand for petroleum products, stated Fitch. Even though gross refining margins (GRMs) are weak.
The GRMs are typically calculated per barrel of processed crude oil. It is the difference between the value of the refined products produced and the cost of the crude oil and other things used to produce them.
Fitch Ratings said this pre-COVID level in demand and supply and other factors will lower downside risks for their credit metrics. “We expect above long-term average MMs from FY22, which should aid GRMs in the short term, partly recover past refinery investments and fund new investments over the medium term.”
In FY 2021, GRMs are at USD 2.0-2.5 per barrel. However, GRMs are likely to rise to around USD 3.7-4.0 per barrel in FY 2022, it stated.
The agency believes the central or state governments may reduce fuel taxes to support affordability if crude oil prices remain at around USD 60 per barrel or continue to rise. “The capacity to reduce taxes would be supported by the recovery in fuel sales and other government income sources, like the GST, to almost pre-pandemic levels. We believe state interference in fuel prices, if any, would be temporary and limited, as it could affect the government's plan to divest BPCL.”
