With crude oil prices hovering past $100 per barrel globally, domestic fuel markets are feeling the pinch. Private sector fuel retailers, including Nayara Energy and Reliance-backed Jio-BP, have recently hiked petrol prices by Rs 5 per litre and diesel by Rs 3 per litre. However, public sector oil marketing companies did not announce any revision in retail fuel prices.
Meanwhile, energy sector experts warn that state-owned oil marketing companies (OMCs) and city gas distribution network providers could face severe margin pressure if rising input costs are not passed on to end consumers.
Last seen, Brent Crude futures, December expiry, was trading at $105.7 per barrel. At the same time, the US-based WTI Crude was quoted at a level of $94 per barrel.
Why OMCs Remain Most Vulnerable
Dhaval Popat, Analyst – Energy, Choice Institutional Equities believes that State-owned OMCs remain the most vulnerable to crude oil sustaining above USD 100/b, particularly if retail petrol and diesel prices remain unchanged.
“We expect HPCL (not rated) to face the highest earnings pressure, followed by IOCL (not rated) and BPCL (not rated), as elevated crude prices compress marketing margins, potentially offsetting benefits from stronger refining margins,” Popat said.
As per the expert, CGD players, including IGL (not rated), MGL (not rated), Gujarat Gas (not rated)and Adani Total Gas (not rated), could face margin pressure if higher gas procurement costs cannot be fully passed on to consumers.
“Meanwhile, GAIL (not rated) and Petronet LNG (not rated) remain exposed to potential volume weakness and gas sourcing risks, although their regulated or contracted businesses provide some insulation,” he emphasised.
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Why Passing Input Costs To Consumer Is Essential
Overall, we believe the key earnings risk is not crude above USD 100/b alone, but the inability to pass higher input costs through to end consumers.
“Importantly, the prevailing tightness in global middle distillates could support refining profitability, making OMC marketing margins the principal area of concern,” the analyst said.
Why Are Private Players Hiking Fuel Prices?
For the past few weeks, crude prices have remained over $100 per barrel in the international market, weighing on import bills. The crude prices boiled up amid fresh escalation between Saudi Arabia and the Houthis, on top of choking the Strait of Hormuz.
Earlier, the fuel prices cooled after a ceasefire between the US and Iran. However, it took an elevated path again after the two sides failed to reach consensus. The latest exchange of attacks on oil tankers in the Strait of Hormuz and other sea routes is creating difficulty for oil marketing companies in India.
India imports around 85-90 per cent of its oil needs,d and higher crude rates in the international market have a direct impact on oil marketing companies.