OMCs incurring cash loss on diesel even as India's crude oil basket price softens: sources

Public sector oil marketing companies (OMCs) such as Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd, and Hindustan Petroleum Corp. Ltd are already incurring cash loss on diesel, industry sources tell CNBC-TV18.

OMCs estimate they are facing an under-recovery of Rs 9 to Rs 10 per litre on the sale of diesel, which could have been higher had it not been for the strong refining margins and the set-off available against export cess, which is helping companies absorb some of the marketing loss. Sources say diesel is a pain point with some cash loss already being incurred. On petrol, the companies are estimated to be suffering an under-recovery of Re 1 to Rs 2 a litre.

The losses are coming even as the price of the Indian basket of crude has softened from $97 per barrel on September 29 to under $94 a barrel on October 2. For customers, it means that chances of a reduction in fuel prices are lower even as the country heads towards elections to key state assemblies of Telangana, Chhattisgarh, Madhya Pradesh, and Rajasthan.

Marketing margin is the difference OMCs earn by selling fuel in the retail market. While the cost of crude oil for OMCs has risen, prices at the retail level haven't seen a change since April 2022, thus impacting OMC margins.

Global brokerage Nomura expects the profitability of oil marketing companies — HPCL, BPCL, and Indian Oil to decline in the September quarter as under-recoveries on the sale of auto fuels rise. State-owned OMCs posted profits in the June quarter on the back of healthy marketing margins as crude prices hovered around $75 per barrel.

Sources say the gains of May, June and July are providing some cushion to the OMCs but crude oil at $95 per barrel and beyond is definitely a worry.

Sources also say that while OMCs are not seeing any loss on Liquefied Petroleum Gas (LPG) currently, there is an uptick in prices. Meanwhile, the price of a 19 kg commercial LPG cylinder has been increased by Rs 209 to Rs 1,731.50 from the previous Rs 1,522.50. The price hike is effective in Delhi and across cities from Sunday, October 1.

Meanwhile, India’s oil minister Hardeep Puri has appealed to OPEC to show sensitivity towards consuming countries. India imports crude oil worth $101 billion from OPEC nations and ensuring access to affordable energy is a must for social upliftment.

In the minister's words, “During the pandemic, when crude oil prices crashed, the world came together to stabilise the prices to make it sustainable for the producers. Now, as the world is at the cusp of economic recession and slowdown, oil producers need to show the same sensitivity towards the consuming countries.”