OMC losses likely to widen on lower margins, frozen prices

Losses at , Bharat Petroleum and are expected to widen to ₹21,300 crore in the July-September quarter from ₹18,500 crore in the previous quarter as refining margins shrank and retail prices remained frozen, said.

“The three oil marketing companies –

, and – remain trapped in the quagmire of weak marketing losses and there is not enough traction in gross refining margins (GRMs),” the brokerage said in a note on Thursday. “Q2 may see the trend worsen, with a $5.6-15.9 per barrel quarter-on-quarter dip in GRMs, which is compensated only partly by improvement in blended retail fuel losses.”

The combined losses on retail sales for diesel and petrol narrowed to ₹9.8 per litre in the second quarter from ₹14.4 per litre in the first quarter of the current fiscal year, as per the brokerage. The margin on petrol was minus ₹1.2 per litre in the second quarter compared to minus ₹10.2 in the first. But in the case of diesel, however, the margins worsened from a negative ₹12.5per litre in the first quarter to a negative ₹13.4 in the second quarter.

Domestic retail prices have remained frozen for about six months while the international fuel rates have been on a rollercoaster. This resulted in a loss of ₹18,500 crore in the first quarter of the current fiscal year and is expected to widen in the second quarter. The three oil marketing companies had reported a combined profit of ₹11,000 crore in the second quarter of the last fiscal.

Indian Oil Corp is estimated to report a loss of ₹6,300 crore while BPCL and HPCL are estimated to report losses of ₹6,900 crore and ₹8,100 crore respectively in the second quarter of this year, as per ICICI Securities.

Oil prices have fallen from an average of $113 per barrel in the first quarter to $100 in the second quarter. Margins on petrol and diesel have also sharply dropped. The benchmark Singapore GRM fell to $8.29 per barrel in the second quarter from $20.93 in the first.

Industry executives do not expect oil prices or margins to retrace this year’s highs in the near future as recession fears loom in the advanced economies.

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