“Despite the strength seen in refining, overall earnings for OMCs will continue to remain under pressure, given the steady expansion in marketing losses over the last three months,” the brokerage said.
With international prices expanding sharply over the last 2-3 months and the continuing freeze on domestic retail prices, estimated losses on petrol and diesel have risen to ₹10.5 and ₹12.5 per litre respectively in the current quarter till the week of June 17, as per the brokerage. In the January-March period, the losses were ₹1.5 and ₹1.6 per litre for petrol and diesel.
ICICI Securities estimates that every $1 per barrel increase in gross refining margin can compensate for ₹3-4 per litre of retail fuel loss for OMCs.
Crude oil prices have been elevated and highly volatile since the beginning of the Russia-Ukraine war on February 24. Refined fuel prices have risen even faster than crude oil in the international market. Benchmark Asian refining margins have risen to $24 per barrel compared to the past decade’s average of $5.7 per barrel. The margins on diesel have risen to $60 per barrel and on petrol to $40.
Low fuel inventories, lost Russian exports, strong demand in Europe, gradual relaxation in restrictions in China, lower refinery production in Europe and delay in the ramp-up of Middle Eastern refineries will support strong margins on diesel in 2022, brokerage Jefferies said in a note this week. The summer driving season in the US has further boosted the demand for transportation fuel.