Reduced GRMs in the face of rising petroleum prices might hinder state-run OMCs' performance

Reduced GRMs in the face of rising petroleum prices might hinder state-run OMCs' performance

Singapore GRMs have dropped from about $10 per barrel in February—the highest price so far in 2024—to less than $4 per barrel in April, the lowest since October 31.

Refiners in India cut the cost of gasoline and diesel by Rs 2 per liter on March 14.

The drop in Singapore's gross refining margins (GRM), which have dropped below $4 per barrel, is predicted to have an effect on state-run oil marketing companies (OMCs). This would be a double whammy for businesses in light of the rising price of crude oil.

According to analysts, the recent decline in GRMs is mostly the result of rising crude oil prices brought on by geopolitical unrest rather than a significant increase in the demand for petroleum products. As far as the demand for diesel is concerned, not much has changed; instead, input prices have increased quickly. This lag, together with the US inventory ramp-up, are some of the reasons for the fall of the diesel spread. An expert who wished to remain anonymous said, "There has been a fall of 7-8 percent in both diesel and ATF spread.

"Product prices may not always increase in response to rising oil prices that stem from supply rather than demand issues. As a result of concerns about supply security and the geopolitical war between Iran and Israel, which is extending to the rest of the Middle East, petroleum prices have recently spiked, the expert said.

Singapore GRMs have dropped from about $10 per barrel in February—the highest price so far in 2024—to less than $4 per barrel in April, the lowest since October 31.

Because there are now relatively few maintenance works underway, throughput has been strong. Seasonality has reduced travel to a minimum, which has resulted in a sharp decline in jet kero fractures. Diesel cracks have decreased as a result of the markets' ample supply, according to Prashant Vasisht, VP & Co-Head, Corporate Ratings, ICRA.

Effect on Off-Market Capitalization

A decline in refining margins is anticipated to hurt Indian OMCs, namely Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL). This occurs at a time when the businesses have already reported an inadequate recovery from the fuel sale.

This would have an effect on the OMCs since they are already losing money on diesel marketing. They used to have high GRMs to help offset some of their marketing losses. However, the decline in crack spreads and GRMs has now also made the refining side weaker, according to Vasisht.

On March 14, when oil prices steadied at around $80 per barrel, Indian refiners lowered the country's rates for gasoline and diesel by Rs 2 per litre. However, since then, the continuous global instability has increased the impetus behind crude oil prices. Crude oil prices have stayed high in 2024 so far because of limited supply, transportation hazards, and Ukrainian assaults on Russian energy infrastructure. In the first quarter of 2024, oil prices increased by sixteen percent.

The emphasis is still on OMC performance in light of the declining GRMs and rising crude oil prices. April 30 is Indian Oil's scheduled date for the release of its fourth-quarter results, whereas May 9 is HPCL's. Dates for the release of BPCL's Q4 and annual results are still pending.