Refinery margins, inventory gains to offset losses on petrol, diesel: Fitch – Times of India

NEW DELHI: State-owned gas retailers IOC, BPCL and HPCL might endure advertising losses in January-March 2022 quarter for holding petrol and diesel costs regardless of an increase in price however sturdy core refining margins and windfall stock positive factors ought to mitigate the potential losses in close to time period, Fitch Scores mentioned Tuesday.
The three fuel retailers stored petrol and diesel costs unchanged for a document 137-days between November 2021 and March 2022 regardless of a virtually $27 per barrel rise in crude oil costs. The three corporations raised the charges by Rs 10 per litre over 16 days starting March 22 earlier than once more hitting a pause button.
“Gasoline (petrol) and gasoil (diesel) retail costs in India, and consequently the advertising margins of the oil-marketing corporations (OMCs), ought to stay aligned with the motion in crude oil costs over the long run, however sporadic intervals of fixed retail costs amidst heightened volatility in oil costs,” Fitch mentioned in a be aware.
The correlation of retail fuel prices with the 15-day rolling common of crude oil costs (reference costs) has remained excessive at 93 per cent for the reason that onset of the Covid-19 pandemic in January 2020.
The correlation excludes the influence on retail costs from modifications in excise duties, and contains intervals when the OMCs didn’t move by way of the motion in oil costs instantly to customers, it mentioned.
“The OMCs benefitted from sturdy advertising margins throughout instances of low oil costs (March-June 2020), and endured margin strain throughout excessive oil costs (November 2021-March 2022) as they tried to maintain gas costs reasonably priced,” it mentioned.
Nevertheless, November 2021-March 2022 was the longest retail value freeze regardless of the reference crude oil costs growing by almost $27 per barrel (or Rs 13 per litre) throughout the interval.
This “might result in advertising losses for the OMCs within the fourth quarter of the monetary yr ending March 2022,” it mentioned including that retail gas costs have subsequently been raised by solely round Rs 10, implying that additional value hikes could also be required for advertising margins to achieve pre-November ranges, and early FY23 advertising margins might also be beneath strain.
“We consider that sturdy core refining margins and windfall stock positive factors ought to mitigate potential advertising losses within the close to time period, and the OMCs might even see alternatives to recoup a few of the losses in intervals of falling oil costs, if and when that occurs,” it mentioned.
Fitch mentioned it expects such situations of oblique state interference in gas costs to be short-term, and their influence on the standalone credit score profiles (SCPs) of the OMCs – Indian Oil Company (IOC), Bharat Petroleum Company Ltd (BPCL) and Hindustan Petroleum Company Ltd (HPLC) – to be impartial over the long run.
“Nevertheless, if crude oil costs are sustained past Fitch’s base-case assumptions, then record-high retail gas costs might restrict the extent to which the modifications are handed on, pressuring OMCs’ credit score metrics,” it mentioned with out giving the reference value.
Fitch believes that freedom on retail gas pricing continues to stay a key space, requiring readability earlier than the federal government’s proposed divestment of BPCL may be concluded.
“India has historically used its management of the OMCs to hold out its socio-political agenda, affecting the competitiveness of personal gas retailers, which at a ten per cent market share have restricted pricing energy and align their retail costs with the OMCs.
“We anticipate personal gas retailers to extend exports at higher margins throughout instances when home margins are beneath strain,” the ranking company mentioned.
India’s export of diesel rose by 12 per cent year-on-year in January-February 2022.
The rankings company mentioned the three gas retailers are pushed by the excessive chance of parental help, primarily based on continued sturdy linkages.

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