Key Points
Global crude oil production increases while demand remains subdued
Electric Vehicle growth impacts oil market dynamics
Retail margins for oil companies expected to improve
Gross Refining Margins projected between $4-$6 per barrel
The higher thrust towards Electric Vehicles (EVs) and alternative fuels is also expected to dampen demand for oil.
The report points out that the decline in crude oil prices would result in improved retail margins of oil marketing companies such as Indian Oil, Bharat Petroleum and Hindustan Petroleum which are expected to be in the range of Rs 7-9 per litre.
The higher retail margins of oil marketing companies are expected to offset the impact of reduced gross refining margins whereby integrated players having a presence in both refining and fuel retailing businesses are expected to be better-off compared to standalone refiners.
CareEdge Ratings observed a softening of Gross Refining Margins (GRMs) for Indian public sector oil marketing companies (OMCs) during the first nine months of FY25 to an average of $4.8 per barrel compared to $11.75 a barrel in FY24 and $17 in FY23. This was mainly due to a decline in discounts available on sourcing of Russian crude oil along with the reduction in product cracks especially diesel which had previously gone up sharply in the aftermath of the Russia-Ukraine war.
Going forward, CareEdge Ratings expects GRMs of Indian PSU OMCs to remain in the range of $4-$6/bbl in the next 6 months.
"Improved retail margins of OMCs are expected to offset the impact of reduced GRMs whereby integrated players having presence in both refining & fuel retailing businesses are expected to be better-off compared to standalone refiners. Also, good retail margins in the domestic market have resulted in Indian players focusing more on expanding their retail network rather than focusing on exports which was more lucrative, especially during FY23," said Hardik Shah, director at CareEdge Ratings.
Retail margins on petrol and diesel for fuel retailers have improved sharply in Q3FY25 to around Rs 9/litre on the back of a decline in crude oil prices along with moderation in GRMs of OMCs.
Given our expectation that crude oil prices are unlikely to go up significantly and GRMs are also expected to remain range-bound during the next six months, we expect the blended retail margin to remain healthy in the range of Rs 7-9/litre, which provides some scope for rationalisation of retail prices of petrol and diesel that have largely remained stagnant since long, the report added.
