OMCs start to bleed, stare at steep losses

Prices may not rise soon as govt shields end users

- SAURAV ANAND

THE AVERAGE PRICE at which domestic refiners import oil -- India's crude oil basket -- surged to $146.09 per barrel on March 17, up 111.7% from an average of $69.01 in February.While the development has raised the prospect of a sharp spike in input costs across industries and macro economic stress, among first to bear the brunt are state-run oil marketing companies (OMCs), whose marketing margins have come under immense pressure.

The oil price surge has been steep, with the India's basket rising from $70.90 on February 26 to $127.20 on March 12, $136.56 on March 13 and $142.69 on March 16, reflecting tightening global supplies amid disruptions in West Asia. ACCORDING TO ANALYSTS, at current levels India's downstream oil industry has moved well beyond the breakeven threshold.

"Above $110 per barrel crude, sectoral math fails... OMCs' diesel and petrol margin will fall by 6.3 per litre, and LPG loss would rise by ₹10.2 per kilo gramme, implying a ₹32,800 crore rise in annual LPG under-recovery," says Elara Capital.

While upstream companies are expected to benefit, the sectoral gains remain uneven. Upstream profits and cash flows would increase. Gross refining margins too have surged following closure of refining capacities and product shipping constraints from West Asia.