Oil marketers’ shares hit 52-week highs on margin hopes
₹8-9 a litre in Q1. Moderation in both crude costs and softer product prices are likely to benefit OMCs’ marketing earnings in Q1, they said. The OMCs are being allowed to recover their losses on marketing during a high crude price environment.
The blended auto fuel margins stood at ₹3 a litre during Q4 which are likely to improve to ₹9 a litre during Q1, said Avishek Datta, senior analyst at Prabhudas Lilladher. With no retail price cut, despite lower international product prices, OMCs’ auto fuel over-recoveries further increased to nearly ₹24,000-25,000 crore in Q1 FY23, on an estimate, said analysts at Kotak Institutional Equities. Auto fuel over-recoveries will more than offset the impact of 50% sequential decline in benchmark gross refining margins (GRM), they added.
The benchmark Singapore GRMs averaged lower at $4.1 a barrel versus $8.2 a barrel in Q4 FY23, due to drop in diesel and ATF spreads by $12 a barrel as per analysts’ data. Lower refining spreads will be partly compensated by continued sourcing of discounted Russian crude, said Prabhudas Lilladher’s Datta. While refining profits will be lower, recovery in marketing margins will drive Q1 net profits.
However, oil prices have started moving up slightly post oil producing nations led by Saudi Arabia resorting to higher production cuts and Russia also supporting the cuts. Nevertheless, analysts do not see a significant rise looking at weak China demand, adequate global supplies and reserves. An analyst at a domestic brokerage said on condition of anonymity that ideally oil prices should have instantly surged by more than $5 a barrel after the announcements on production cuts.
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