Small cut in fuel price a big hit to OMC revenue: Analysts
The government had announced the price cut with effect from March 15, a day before general election dates were announced.
“Although small on headline, a Rs 2 per litre cut will reduce OMC revenue/ ebitda by about Rs 30,000 crore ($3.7bn) annualised,” JP Morgan said in March 15 report, adding that “the latest data suggests Russian crude discounts have fallen further. Put together, these should remove the current super-normal profitability at the three companies.”
This is the first fuel revision by the OMCs in nearly two years—the last was on April 6, 2022. Despite major volatility in global oil prices due to the Russia-Ukraine war and unrest in West Asia, India pump prices have remained steady.
Heavily discounted Russian crude oil and handsome refining margins saw the OMCs clock record profits over the past few quarters, building the case for a fuel price cut.
According to Ministry of Commerce and Industry data, discounts available on Russian crude for Indian refiners have plummeted from the highs of $15 per barrel to about $2 per barrel. This comes as the proportion of Russian oil imports has increased. Russia has remained India's top crude oil supplier for over a year-and-a-half despite western sanctions and the narrowing discounts on crude. “The OMCs have been reporting super-normal profits, well ahead of FY25 consensus expectations,” JP Morgan said. “Large upgrades were likely if nothing had changed. This outlook has become diluted with the retail price cut and falling Russian discounts.
A senior OMC
