Given the volatility in international crude oil prices, Moody’s Investor Service expects the profitability of India’s oil marketing companies (OMCs) — Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) — to weaken if oil prices are at elevated levels as the three companies will have little room to pass on the higher costs to consumers in view of the impending 2024 Lok Sabha elections.
“The OMCs’ marketing margins — the difference between their net realised prices and international prices — have already weakened significantly from the high levels seen in the quarter ended 30 June 2023. Marketing margins on diesel turned negative since August while margins on petrol have narrowed considerably over the same period as international prices increased,” Moody’s said in a recent report. It added that to some extent, the slump in marketing margins has been mitigated by strong refining margins — the difference in the value of all refined products coming out of a refinery and the value of crude processed to derive those products.
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