OMCs Face Crude Shocks

State-owned oil marketing companies bore the brunt of high oil prices and suppressed marketing margins in FY23. Cheap Russian supply and softer crude oil prices may change the script in FY24.

- ARNIKA THAKUR

THE YEAR GONE BY was forgettable for India's largest state-owned oil marketing companies (OMCs). Profits of Indian Oil Corporation (IOC) and Bharat Petroleum Corporation (BPCL) tumbled while Hindustan Petroleum Corporation (HPCL) reported a loss as marketing margins shrank due to soaring crude oil prices.

The companies were unable to pass on high crude oil prices-which surged in first and second quarters-to retail customers. Crude oil averaged $93 a barrel during the year; it crossed $100 in the first half of 2022 on account of supply concerns amid Russia-Ukraine war. Prices, however, dropped in the second half of the year due to lower demand from China and concerns over global economic contraction.

In FY23, IOC's profit fell 61%. BPCL saw 82% decline while HPCL reported an adjusted loss of ₹6,964.85 crore compared to a profit of ₹7,184.93 crore in FY22. Net sales, however, rose 26%. IOC reported a 40% jump in total income. BPCL's income rose 34%.

The situation has improved this fiscal due to lower crude oil prices and rise in share of crude oil from Russia that is cheaper than from other countries. S. Bharathan, director of refineries, HPCL, says global crude oil prices have remained range-bound in last one year (around $85 a barrel with exception of May-June 2023 when they fell to $75 and in Sept-Oct 2023 when they were above $90). "Such volatility is much less than what we have witnessed in past two-three years due to the pandemic and the RussianUkraine conflict. HPCL is safe against fall in crude oil prices. High oil prices increase higher fuel cost for refineries. Due to higher global inflation and interest rates, cost of capital has increased in general," he tells Fortune India, adding they have attempted to mitigate some of these risks by tapping cheaper crude grades.