OMC losses likely to widen on lower margins, frozen prices

Losses at , Bharat Petroleum and are expected to widen to ?21,300 crore in the July-September quarter from ?18,500 crore in the previous quarter as refining margins shrank and retail prices remained frozen, said.

“The three oil marketing companies –

, and – remain trapped in the quagmire of weak marketing losses and there is not enough traction in gross refining margins (GRMs),” the brokerage said in a note on Thursday. “Q2 may see the trend worsen, with a $5.6-15.9 per barrel quarter-on-quarter dip in GRMs, which is compensated only partly by improvement in blended retail fuel losses.”

The combined losses on retail sales for diesel and petrol narrowed to ?9.8 per litre in the second quarter from ?14.4 per litre in the first quarter of the current fiscal year, as per the brokerage. The margin on petrol was minus ?1.2 per litre in the second quarter compared to minus ?10.2 in the first. But in the case of diesel, however, the margins worsened from a negative ?12.5per litre in the first quarter to a negative ?13.4 in the second quarter.

Domestic retail prices have remained frozen for about six months while the international fuel rates have been on a rollercoaster. This resulted in a loss of ?18,500 crore in the first quarter of the current fiscal year and is expected to widen in the second quarter. The three oil marketing companies had reported a combined profit of ?11,000 crore in the second quarter of the last fiscal.

Indian Oil Corp is estimated to report a loss of ?6,300 crore while BPCL and HPCL are estimated to report losses of ?6,900 crore and ?8,100 crore respectively in the second quarter of this year, as per ICICI Securities.

Oil prices have fallen from an average of $113 per barrel in the first quarter to $100 in the second quarter. Margins on petrol and diesel have also sharply dropped. The benchmark Singapore GRM fell to $8.29 per barrel in the second quarter from $20.93 in the first.

Industry executives do not expect oil prices or margins to retrace this year’s highs in the near future as recession fears loom in the advanced economies.