No big profits, but oil companies making record margins

By OEM Update Editorial April 30, 2020 12:38 pm IST

Fuel retailers are making an unprecedented margin of Rs 13 per litre, six times the average of 2019-20 as domestic fuel rates have been frozen for weeks, while global crude prices have crashed.

However, this will not lead to heavy profits because demand has fallen sharply as the lockdown has kept most motorists away from the pump.

Brent crudeoil fell to $27.10 a barrel on Monday, down 46 per cent since the beginning of March as the Covid-19 pandemic has destroyed about 30 per cent of global oil demand.

US crude fell 28 per cent on Monday to $13 a barrel, a 21-year low, on concerns country’s crude storage was running out of space. Since the beginning of March, the domestic rates of petrol have fallen by Rs 2.3 per litre, or 3.2 per cent, and that of diesel by Rs 2.2 per litre, or 3.5 per cent.

In the same period, international rates of petrol and diesel have fallen by about 50 per cent and 40 per cent, respectively. Fuel retailing in India is dominated by state firms Indian Oil, Hindustan Petroleum and Bharat Petroleum.

Private retailers include Reliance Industries, Shell and Nayara Energy Domestic fuel rates are expected to vary daily to reflect the changes in the international fuel prices and the exchange rate.

Some of the gains from the drop in international rates have been offset by currency depreciation of `4.36 to a dollar, or 6 per cent since the beginning of March.

Increased taxes, of `3 per litre by the central government in mid-march, have also eroded potential gains for consumers. Central and state taxes comprise 54 per cent and 45 per cent of retail rates of petrol and diesel, respectively, in Delhi today.

Marketing margins have risen sharply, according to ICICI Securities. “We believe oil marketing companies are being allowed such high marketing margins to make up for the large inventory loss of `331 billion we estimate they made in Q4FY20 and to make up for steep sales volume decline due to the lockdown,” ICICI Securities said in a report published on Monday.