Higher than usual imports of Russian oil to help fuel retailers amid petrol, diesel prices freeze: Report

Higher than usual imports of Russian oil at important reductions to market prices might restrict near-term working capital wants of fuel retailers IOC, BPCL and HPCL, Fitch Ratings stated on Tuesday.

State-owned Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) haven’t modified the retail promoting value of petrol, diesel and cooking fuel LPG consistent with price over the previous few months. They incur losses on fuel advertising and marketing, that are being offset by positive aspects from different areas equivalent to increased refinery margins from processing cheaper Russian crude.

Fitch stated rising world demand and tightening provide for refined merchandise assist refining margins, and oil firms’ advertising and marketing margins get better step by step.
“Higher-than-usual imports of Russian oil at significant discounts to market prices may also limit the OMCs’ near-term working capital needs,” it stated.
This follows weaker metrics in FY22 as advertising and marketing losses pressured EBITDA and rising crude oil prices elevated working capital necessities, offset partly by stock positive aspects.

“We expect petrol and diesel retail prices in India to remain aligned with the movement in crude oil prices over the medium term, despite sporadic periods of constant retail prices amidst heightened volatility in oil prices,” the score company stated.

This, it stated, ought to drive a gradual enchancment within the advertising and marketing margins of oil advertising and marketing firms (OMCs) over the remaining of FY23 (2022 to 2023), albeit to ranges decrease than regular.

However, if crude oil prices are sustained past base-case assumptions in 2022, then record-high retail fuel prices might restrict the extent to which the adjustments are handed on, pressuring OMCs’ credit score metrics, it stated.

The three fuel retailers paused every day revision in petrol and diesel prices when 5 states, together with Uttar Pradesh, went to the polls final year. They once more hit a pause button after elevating charges by Rs 10 per litre attain for a fortnight interval beginning end-March.

Crude oil value (from which petrol and diesel are made) soared from USD 84 per barrel to a close to 14-year excessive of USD 139 in early March earlier than paring some positive aspects. It is buying and selling at USD 119.

Fitch stated it expects decrease refined product exports from China, disruption in product flows from ongoing geopolitical tensions, and elevated uptake of center distillates for energy technology to preserve the tight demand-supply for petroleum merchandise in Asia within the close to time period.

However, the present highs in refining margins ought to reasonable over the medium time period as new capacities ramp up and provide facet points enhance.
“We believe that high crude oil prices, the recent 110 per cent increase in natural gas prices by the Indian government, and our expectation of a further increase in gas prices in the next reset in October 2022, will boost the FY23 profitability of ONGC and OIL and support their investment spending and shareholder distributions,” Fitch added.

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