The refining operating environment improved in the March quarter. Benchmark Singapore gross refining margins (GRMs) came in at $6.2 per barrel in the March quarter on the back of stronger petrol spreads and firm middle distillates spreads, pointed out Religare Institutional Research. In the December quarter, Singapore GRMs stood at $4.3 a barrel.

Not much has changed as far as the fate of oil marketing companies (OMCs)—Bharat Petroleum Corp. Ltd, Hindustan Petroleum Corp. Ltd and Indian Oil Corp. Ltd—is concerned. Profitability of the Indian state-run OMCs will as usual depend on compensation from the government and upstream oil companies. Religare maintains that upstream assistance for Q4 is expected at 15,400 crore, adding up to 64,000 crore for FY14, thus making the government’s cash assistance critical. “So far, GoI (government of India) has announced an assistance of 35,700 crore (9MFY14) hence, we expect further assistance of at least 36,800 crore for OMCs to end FY14 in black, considering OMCs bear an under-recovery burden of 4,200 crore amongst themselves," Religare said in its earnings preview.

Shareholders of Oil and Natural Gas Corp. Ltd (ONGC) will have to watch out for the royalty payment impact in the March quarter. The company is expected to report a marginal improvement in its production. Lower crude prices sequentially can hurt realizations of ONGC, Oil India Ltd (OIL) and Cairn India Ltd.

Most of the stocks mentioned above have done well this year, especially the OMC stocks (up 26-30%). Optimism for the OMCs was on the decline in under-recoveries backed by declining diesel losses.

ONGC’s shares have risen by about 13% and analysts believe that the stock does not factor in a gas price increase yet. On the other hand, shares of RIL and Cairn have increased by 5.5% since 31 December, around the same as the benchmark S&P BSE Sensex.