New Delhi: Amid ongoing geopolitical tensions, unchanged retail fuel prices amid volatile oil prices will support overall industry returns, according to a report on Thursday. Operating profit will be above $9-11 per barrel on average over the 10 years to fiscal 2025. This will partly support the substantial and continued capital expenditure (capex) of oil marketing companies (OMCs), according to a CRISIL Ratings report.
OMCs are projected to see their operating profits fall to $12-$14 per barrel in fiscal 2025 from $20 per barrel in the last fiscal year. A moderation is expected as diesel spreads soften, discounts on Russian crude oil diminish and the impact of inventory loss begins to bear on the current average price of $75 per barrel, down from $82 per barrel in the first half of the fiscal year.
According to Aditya Jhaver, Director, CRISIL Ratings, the gross refining margin (GRM) is seeing a sharp correction in this fiscal year and is likely to average between $3 and $5 per barrel, and diesel spreads will stabilize as refiners Globally, production has increased while consumption has slowed. .
“That said, overall returns will be bolstered by marketing margins (net of operating expenses) that are likely to continue at Rs 4.5 per liter (or $9 per barrel), not taking into account the reduction in retail prices of the fuel,” he said. OMCs earn revenue from two businesses: the refining business and the marketing business.
While the oil price declined 11 percent year-on-year to average $83 per barrel in fiscal 2024, the fluctuation in the value of inventories had a marginal impact on the overall GRM (reported at $12 per barrel). barrel). Core margins were healthy due to high diesel spreads with continued geopolitical uncertainties disrupting the global energy supply chain and keeping international prices high.
Additionally, virtually unchanged retail fuel rates resulted in healthy marketing margins (net of operating expenses) of Rs 4 per liter or $8 per barrel, which accumulated to a high overall profit of $20 per barrel for the year, the report mentions.
The resulting cumulative cash buildup, estimated at Rs 52,000-54,000 crore, will partially support the OMCs’ planned capital expenditure of Rs 90,000 crore. “While earnings could moderate year-on-year, the industry is expected to continue capital expenditure, which will be partly funded by debt,” said Joanne Gonsalves, associate director at CRISIL Ratings.
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