With Brent crude prices recently hovering around $48 a barrel mark for the first time since early April, oil marketing companies (OMC) in India may end up pocketing up to Rs 1,380 crore from inventory gains by the next financial quarter (Q3 FY2021). This is in contrast to early April, when crude prices slipped to a two-decade low of under $20 a barrel.
As per a research report prepared by ICICI Securities, the inventory gains for OMCs in Q3 FY21E are likely to be in the range of Rs 4.5-8.8 billion (Rs 450- 880 crore) based on international prices up to November 25 and at Rs 7.1-13.8 billion (Rs 710- 1380 crore) as per latest prices.
"Recent oil price rebound has led to auto fuel retail price hikes in order to keep net marketing margins high. Oil price rise will also mean inventory gains in Q3 FY21E. With GRM continuing to be weak, despite recovery in diesel cracks, strong marketing margins are needed to ensure integrated margins at a reasonable level. Retail price hikes augur well for OMCs," ICICI Securities remarked in its report.
As per the calculations, the auto fuel net marketing margin currently stands at Rs 4.2/litre in FY2021 so far this fiscal and Rs 3.34/litre in Q3 FY2021 and Rs 3.59/litre on November 25.
Auto fuel inventory down on demand rise & exports exceeding surplus
The consumption of automotive fuels during October witnessed an uptick for the first time in FY2021 growing at about 2.5 percent compared to a year ago. The demand for diesel was up by 7.4 percent while petrol grew by 4.5 percent during the comparable period. However, during November 1-15, the consumption of diesel was down again by 5 percent (YoY) while petrol was up modestly. The fall in diesel consumption in November is however on a high base of November 2019 when consumption was up 9 percent YoY.