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Rising crude prices challenge India’s OMCs amidst upcoming elections: Nomura

BusinessRising crude prices challenge India’s OMCs amidst upcoming elections: Nomura

New Delhi

India’s oil marketing companies are now recording under-recoveries of INR 7.4/litre on the sale of auto fuels and faced the prospect of an impact on their profitability in the July-September second quarter of FY2023-24 as rising crude oil prices and product spreads squeeze marketing margins from recent peaks. The sharp decline in blended marketing margins amounts to INR 4.7/litre in the week ended 24 September, 2023 from INR 2.9/litre in the previous week, says Nomura Ratings in a recent assessment of the Fiscal impact of higher oil prices. The blow on the profitability of OMCs in 2QFY23F is likely to be the highest on Hindustan Petroleum Company, given its higher share of marketing in earnings.

Fuel prices are market determined but in practice, OMCs have kept retail fuel prices unchanged for over a year now. Under-recoveries refer to the difference between the retail price and the international price of the fuel. Nomura notes that their losses (under-recoveries) are only partially paid by the Government through fiscal subsidies, and typically OMCs have to bear the losses on their own account. “The loss sharing between the government and OMCs remains opaque,” say Nomura experts. Based on current crude and product prices, blended marketing margins are deep in the red at INR 5.2/litre.

The same timeframe in the prior fiscal year. Notably, exports to Russia saw a dramatic increase, skyrocketing 178% year-on-year to reach USD 568.41 million. Conversely, exports to the United States, one of India’s major markets, decreased by 14%.

August 2023 brought encouraging news with engineering exports showing a 7.73% growth compared to August 2022, attributed largely to a lower statistical base. In specific figures, the exports reached USD 9.05 billion in August 2023, up from USD 8.40 billion the previous year.

Remarkably, despite ongoing challenges, engineering exports made up 26.26% of India’s total merchandise exports for the month of August 2023.

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