Tag: oil marketing companies (OMCs)

Don’t see crude oil touching $100 per barrel in 2024 but matter of concern if it ‘sustains’ at $90: OMC sources

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Government-owned oil marketing companies (OMCs) don’t anticipate crude oil prices reaching $100 per barrel (/bbl) in 2024, contrary to projections by some brokerages. One reason cited for this is the behavior of crude oil futures, which, according to companies, don’t suggest a significant increase in oil prices to $100/bbl, at least for the time being. Currently, Brent crude futures for June–August are trading within a narrow range of $88–$91/bbl.

Brokerage firms Goldman Sachs and JP Morgan have suggested that crude prices could reach $100/bbl, with JP Morgan specifically forecasting September 2024 for Brent crude to hit this mark. Meanwhile, Bank of America and Standard Chartered anticipate crude prices to average $94–$95/bbl in Q2 of FY25. Macquarie previously forecasted crude at $90 by June of this year, and Morgan Stanley had predicted $90 by Q3 of the current fiscal year.

OMCs also indicate that with two to three months of contracts already in place, they may have headroom to deal with higher crude oil prices for now. However, if crude continues at $90 beyond May–June, it may pose some concerns. For instance, the daily price revisions by OMCs remain practically suspended since May 2022, making it impossible for companies to pass on price increases. Industry sources also say that while some of the OMCs can deal with crude oil prices in the $85–$90/bbl band, others are comfortable with crude under $85/bbl, with $78 a barrel as a “wishlist.”

The three government-owned OMCs will be announcing their Q4 and FY24 results by May and it is widely expected that despite the ₹2 price cut in petrol and diesel prices in March, companies are likely to post healthy bottom lines, also due to the previous three good quarters.

During April-December FY24, the three OMCs reported bumper profits of ₹69,000 crore, almost half of which was earned by the Indian Oil Corp. (IOC) at ₹34,781 crore. This is in stark contrast to the ₹30,000 crore of losses suffered by OMCs in FY23 as they absorbed the brunt of soaring crude prices.

Meanwhile, the OPEC+ decision to extend the two million barrels a day production cuts until June 2024 has also contributed to the recent spike in crude oil prices. Although the RBI’s April monetary policy has kept the baseline assumption of the crude price for the Indian basket unchanged at $85/bbl for FY25, the central bank’s commentary is hawkish.

The RBI says, “Global crude oil prices have remained highly volatile, with Brent crude falling from a high of US$95 in early October 2023 to below US$75 by mid-December, before rebounding and settling above US$80 in the first quarter of 2024. An escalation in the conflict in West Asia and logistical impediments in key trade routes may cause serious disruptions in the oil market… Amidst intensifying hostilities in the Middle East, deep output cuts by OPEC plus, and incidents of supply outages, international crude prices reached an average close to US$85 per barrel in March. Geopolitical tensions imparted significant uncertainty to the outlook.”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Centre working on Cabinet approval for capital infusion in oil marketing companies

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government is working on a Cabinet nod for capital infusion in oil marketing companies (OMCs), government sources told CNBC-TV18. As per them, the government is committed to investing Rs 30,000 crore for capex in OMCs. The infusion for capex is viable via the rights issue. Any unsubscribed portion of the rights issue shall be picked up by the government.

The management of other OMCs shall also take a call on this. Bharat Petroleum Corporation Ltd (BPCL) rights issue for capex is being “over analysed”, the sources said.

BPCL board met on June 28 to approve the proposal for raising up to Rs 18,000 crore. The capital will be raised by way of the issue of equity shares on a rights issue basis to eligible equity shareholders of the corporation as on the record date, which will be notified subsequently, the company said in a filing to BSE.

Just after BPCL, Indian Oil Corporation (IOC) also announced a rights issue. “…it is hereby informed that a board meeting of the company is scheduled on Friday, July 7, 2023, to consider raising capital through the Right Issue of equity shares to meet the capital expenditure plan for its various projects, subject to various statutory approvals as may be required,” IOC said in an exchange filing on July 4.

There was a Budget announcement of Rs 30,000 crore in priority capital investments for OMCs.

Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL)-the three companies meet over 90 percent of India’s petroleum demand. However, they are facing financial strain. In the first half of the last financial year, these companies booked a cumulative loss of over Rs 25,000 crore owing to selling liquified petroleum gas (LPG) and other cooking gases below the cost price.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India’s oil refiners may cut fuel prices as financial health stabilises: Exclusive

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government is likely to ask India’s Oil Marketing Companies – Indian Oil, BPCL and HPCL to cut fuel prices as their financials are now in better shape, sources with knowledge of the matter told CNBC-TV18.

Sources said that the financial health of the OMCs is close to normalcy led by fuel under recoveries. The March quarter turned out to be a good one for the state-run refiners as they cumulatively posted a net profit of nearly Rs 20,000 crore. The source adds that the OMCs are likely to have a good June quarter as well.

‘Within bounds of legitimacy, OMCs can pass on some benefit,’ the source said. A decision on the same is awaited.

However, one must note that despite the profits in the March quarter, HPCL still reported heavy losses of nearly Rs 9,000 crore in financial year 2023 on a standalone basis.

India’s oil refiners were hammered in the first two quarters of financial year 2023 with cumulative losses running into thousands of crore. While oil prices were higher then, prices on retail pumps remained unchanged due to various factors. Brokerage firm Citi wrote in a note back in December last year that diesel is close to breakeven levels from OMCs from a retail marketing perspective and can even quicken the pace of normalisation for the refiners.

The tide does appear to be changing for the Oil Marketing Companies as the street is starting to view them in positive light. Last month, Nomura upgraded these companies citing them to be on-track to recover about Rs 23,500 crore and that they are likely to make good on the entire under-recovery in financial year 2025. It also raised price targets for all three firms.

The cut in fuel price narrative was echoed by Morgan Stanley in a note on Wednesday. The brokerage said that the current fuel prices offer a buffer for a 2-5 percent price cut. It also said that the OMCs can recover more than their pre-Ukraine book values in the next two months. Among stocks, it highlighted Indian Oil and BPCL as its preferred picks.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Here’s why oil companies gained in trade on Wednesday

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil marketing companies (OMCs) such as HPCL and BPCL experienced a significant increase in their stock prices on June 7. The stocks were up by 3 to 5 percent, driven by several factors.

Morgan Stanley predicts that OMCs will be able to surpass their pre-Ukraine war book values in the next two months, thanks to the crude basket being priced at approximately $110 per barrel. This positive outlook is further supported by the fact that marketing margins for these companies are reaching new highs.

The fourth-quarter earnings of oil marketing companies were robust, particularly in the refining segment. Investors now anticipate that the marketing segment will also perform well.

Despite the recent surge in stock prices, the multiples for these companies remain below mid-cycle returns. This is somewhat surprising considering the earnings tailwinds predicted by Morgan Stanley in the marketing segment. However, the integrated margins in the marketing segment have reached their highest-ever level. This is primarily due to the fact that despite the decline in crude prices, petrol and diesel prices have not been reduced. As a result, OMCs have benefited from higher marketing margins, which should help them recover from the losses incurred in Q3.

Also Read: Oil prices steady as fears over supply tightness counter demand woes

Even if oil prices remain above $80 per barrel, OMCs have sufficient cushioning to generate profits in the marketing segment. This would reduce the need for government support, estimated at around Rs 30,000 crore. Additionally, the current crude prices of approximately $75 per barrel provide room for potential cuts in petrol and diesel prices ranging from 2 to 5 percent. However, if price reductions do not occur, marketing margins will likely remain at elevated levels, which could serve as the next trigger for the oil marketing sector as a whole.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Oil refiners hope for Rs 50,000 crore cash compensation from government on fuel price freeze | Exclusive

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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[wealthdesk shortname=”IOC” isinid=”INE242A01010″ bseid=”530965″ nseid=”IOC” sector=”Refineries” exchange=”nse”] State-run Oil Marketing Companies (OMCs), HPCL, BPCL and Indian Oil Corporation are seeking compensation of as much as Rs 50,000 crore to cover up for the losses that they have incurred due to the freeze in fuel prices, industry sources told CNBC-TV18.

Sources further said the companies are of the view that they can’t just keep their head above water and remain in survival mode. The companies are demanding this compensation to make up for the losses incurred in the first half of the current financial year.

As an immediate measure, companies are of the view that diesel prices can be hiked by Rs 2-3 per litre, according to sources, who also said that the OMCs are currently making some loss on diesel and marginal gains on petrol.

However, there is no clarity yet on any further compensation to the companies from the government.

Indian Oil Corporation reported a net loss of Rs 2,265 crore for the April-September period of the current financial year while BPCL reported a net loss of Rs 6,567.2 crore for the same period. HPCL’s net debt for the first half increased to Rs 68,600 crore. This, despite a one-time grant given to these companies by the government to compensate for the loss.

CNBC-TV18 had reported in October that OMCs mulled government intervention as they were weighed down by fuel under recoveries. Back then, sources had estimated the combined under recoveries for LPG and fuel to be worth over Rs 1 lakh crore.

Shares of HPCL, BPCL and Indian Oil Corporation are trading with gains between 2.7-5 percent in today’s trading session. The stocks have gained over the last month as crude prices have corrected.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Oil OMCs to cut petrol, diesel prices by 40 paisa from November 1

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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State-owned oil marketing companies (OMCs) are likely to reduce the prices of petroleum products such as petrol and diesel by 40 paise a litre from November 1, 2022, as the price of international crude oil fell.

According to the report by CNBC Awaaz, the reduction in prices by 40 paisa daily is likely to continue for the next five days and a total reduction of Rs 2 in petrol and diesel prices in installments, sources privy to the developments told CNBC-TV18.

Global oil benchmark Brent crude fell more than $1 today on expectations that US production could rise even as weaker economic data out of China and the country’s widening COVID-19 curbs weighed on demand.

Brent crude futures dropped $1.22, or 1.3 percent, to $94.55 a barrel. US West Texas Intermediate (WTI) crude fell $2.41 to $85.49 a barrel, a 2.7 percent loss. Both benchmarks, however, are on track for their first monthly gains since May.

Also Read: Indian Oil reports lower Q2 loss on government cash support

State-owned fuel retailers Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) are supposed to adjust petrol and diesel prices daily in line with the cost, but they have been since November 2021 moderating pump rates.

India is 85 percent dependent on imports to meet its oil needs and so local pump rates are benchmarked against international prices. Fuel prices, particularly diesel, have a cascading effect on inflation as an elevated price will lead to higher transportation costs, spiking prices across the board, including essentials like vegetables.

Petrol and diesel prices were last revised to align with the cost on April 6 and have been on freeze since then. In May, rates were reduced after the government cut the excise duty on petrol by Rs 8 per litre and that on diesel by Rs 6.

Despite a surge in oil prices, the three state fuel retailers first froze petrol and diesel rates for a record 137 days beginning in early November 2021 when five states, including Uttar Pradesh, went to the polls and then went into a hiatus again in April.

Also Read: Nervous November up ahead for new-age companies

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

OMCs may seek Government intervention over fuel under recoveries | Exclusive

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India’s Oil Marketing Companies are mulling government intervention as they are weighed down by fuel under recoveries. Sources tell CNBC-TV18 that the combined under recoveries for LPG and fuel stands at over Rs 1 lakh crore.

The three major OMCs – Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum are likely to approach the government soon, according to the sources.

Under recoveries is the gap between the cost and the selling price of fuel. In case the selling price is lower than the cost price, higher is the under recoveries.

Only two weeks earlier, the Union Cabinet had approved a one-time grant of Rs 22,000 crore to the state-run refiners for losses incurred in the domestic LPG business.

However, there is no call for direct fiscal support to the companies as fuel prices are deregulated.

Also Read: Rs 2 per litre additional excise duty on petrol, diesel put off till November 1

Here are the losses reported by OMCs during the April-June period as they could not revise petrol and diesel prices higher, in-line with higher costs to curb inflation:

• HPCL: Rs 10,196 crore
• BPCL: Rs 6,291 crore
• IOC: Rs 7,485 crore

Experts believe that the companies are likely to report a loss for the September quarter as well.

Industry sources tell CNBC-TV18 that a diesel price hike of at least Rs 10-15 per litre is needed to make up for the under recoveries.

Another option that could be considered is that of a cut in excise duty only for the company, without a pass through for the customer. The government in May cut excise duty on petrol and diesel which was passed on to consumers instead of being used to square off mounting losses on the two fuel sales.

Also Read: Explainer: Why petrol and diesel prices are not declining despite fall in global crude prices

Sources also say that price hikes may be considered next year to make up for the losses. The prices are currently at a freeze in order to help the government combat inflationary pressures.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Explained: What fuel price hike for bulk buyers means; and how they can dodge it

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Indian fuel retailers have hiked the price of petrol and diesel for bulk buyers by Rs 25 per litre. Public sector oil marketing companies (OMCs) Indian Oil Corporation Ltd. (IOCL), Hindustan Petroleum Corporation Ltd. (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL) all increased the prices on March 20 in line with their existing contracts.

At the same time, the price of retail fuel at petrol pumps remains the same for the past 135 days, despite the volatility that crude oil is experiencing in price right now due to the Russian invasion of Ukraine.

Also read: Petrol pumps shut across India after 25% hike in bulk diesel prices

Who are these bulk users?

Bulk buyers are those entities that directly source oil tankers from OMCs due to their large requirements of fuel. Many of these entities either use diesel for powering generators for electricity or other industrial purposes.

Bulk users include factories, airports, bus fleets, transport fleets, malls, etc.

How does this increase work? 

The bulk users directly source their fuel needs by calling for oil tankers. These sales are often governed by contracts. Now, the fuel price for bulk users has been hiked by Rs 25 per litre

After the hike, operating costs can rise by as much as 27 percent, sources in OMCs told The Times of India. As a result, these users can pass on the cost to their customers or try to absorb the new prices.

Also read: 42% Indians won’t be able to absorb another hike in fuel prices: Survey

But bulk users also have the option of meeting their needs through retail petrol pumps. While inefficient, this will keep them outside the ambit of the Rs 25/litre price hike. For bulk users who are using tens of thousands of litres of fuel each month, the savings can quickly rack up to make up for the inefficiency of refilling directly from retail petrol pumps.

What does this mean for retail?

As bulk users shift towards retail outlets to source their fuel requirements, OMCs stand to lose even more money as they would be unable to make up the benefit of the fuel hike in bulk prices. OMCs are already under pressure due to the constantly shifting and volatile price of crude, which has once again gone above $110 a barrel.

As a result, the demand for fuel at retail outlets has increased and many bulk users have tried to top up their capacities if they have made advanced purchases at previous prices to ensure that they have an adequate supply for the future. This has created several logistical issues for OMCs, especially with a shortage of fuel trucks and rakes, a spokesperson from Jio-BP told PTI.

Also read: Govt in wait and watch mode on retail fuel price hike

While PSU oil companies control 90 percent of the country’s petrol pumps, the others are controlled by companies like Nayara Energy, Jio-BP and Shell. The matter has compounded problems for these private companies as they are forced to match the prices of government-supported PSUs. But these companies may soon look at closure of petrol pumps temporarily while retail prices remain the same, people with knowledge of the matter told PTI.

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3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Expect crude prices to moderate Q4 onwards: HPCL’s MK Surana

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Crude prices have been on the rise and given 85 percent of India’s crude supplies depend on imports, MK Surana, chairman and MD of Hindustan Petroleum Corporation Limited (HPCL) told CNBC-TV18’s Anshu Sharma how OMCs are navigating in such a volatile time.

Surana, who was talking on the sidelines on day 1 of the CERAWeek event, the crude price may remain high this quarter due to winter stocking but from next quarter onwards it shall moderate.

He explained that all commodities have moved in tandem and therefore, to some extent coal, gas oil, and all commodities related to energy are globally connected. These factors combined with the pickup of the demand, soaking of inventory, any shock and no cushion to absorb the shock, are giving rise to fluctuations, he said, adding that in the time to come, it should get more moderated.

According to Surana, crude is available is given the number of resources but the prices are very volatile and the rate of change is also quite quick. “Otherwise, prices do go up, prices do come down, but we have seen the swing of $2- $3 also in a day, which is not normal,” he said.

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He said that the transitory phase is driven by a number of factors. Surana pointed to the rate of supply, which is not picking up at the same pace as the rate of demand. It is not that the oil is not available or it cannot be produced, but there are constraints like regulated supply conditions, which is why the rate of pick up of the demand has picked up faster than the supply and that is giving rise to this, he explained. 

Surana said that demand will pick up in the festive season and then people would do winter stocking, which can keep the prices high for some time. 

“But come January, it should get moderated because then this all run will go, the additional crude will be there, of course, 400,000 barrels per month is anyway OPEC Plus supply to come. There is one more element that not all the OPEC countries are able to produce to their allotted quota right now. So, that is also creating a certain shortfall. But I think the first quarter of 22 the January quarter, we should see some moderation,” Surana said. 

Also Read: Oil prices gain as US crude inventory tightens

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow