Room for cut in fuel prices as oil companies boast higher margins: Icra

New Delhi: Domestic oil marketing companies (OMCs) have been witnessing improved marketing margins for auto fuels, thanks to recent decline in crude prices, as per rating agency Icra Ltd.

ICRA's report suggests that these enhanced margins could potentially lead to lower retail fuel prices, provided crude prices remain stable. 

Icra estimates indicate that, as of 19 January 2024, OMCs' net realization was higher by ₹11 per litre for petrol, and ₹6 per litre for diesel compared to international product prices, said Girishkumar Kadam, senior vice president and group head of corporate ratings, Icra Ltd.

Kadam also noted that marketing margins for petrol have seen a recovery in recent months following a significant drop in September. Diesel margins, which were negative until October, turned positive from November.

Retail selling prices of auto fuels have been steady since May 2022. However, there may be scope for reducing these prices if crude oil prices continue to stabilize.

In the first half of fiscal year 2023-24 (FY24), OMCs reported robust operating margins of about ₹90,000 crore, compensating for losses of the previous fiscal year. The ongoing improvement in marketing margins is expected to help OMCs sustain their profitability in the third quarter, despite a moderation in gross refining margins (GRM).

The report added that refining and marketing sector outlook remains stable. Petroleum, oil, and lubricants consumption in India grew 5% year-on-year during April-December period of the current fiscal year.

Looking ahead, Icra anticipates a 3-4% growth in consumption of petroleum, oil, and lubricants in FY25, driven by economic expansion, increased mobility, and air travel. To support this rising demand and exports, India's domestic refining capacity is projected to expand from the current 254 million tonnes to 306 million tonnes over the next three to four years.