More Russian crude imports to insulate oil companies from freezing prices: Fitch

Fitch says larger Russian crude imports will insulate oil companies from losses

New Delhi:

Higher-than-normal Russian oil imports at a significant discount to market prices could limit the short-term working capital needs of fuel retailers IOC, BPCL and HPCL, Fitch Ratings said. said on Tuesday.

India’s State Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) have kept retail prices of petrol, diesel and LPG gas in line with cost for several months. via . They incur fuel marketing losses, which are being offset by profits from other areas, such as higher refinery margins from processing cheaper Russian crude.

Fitch said increased global demand and tight supply for refined products supported a gradual recovery in refining margins and marketing margins for oil companies.

“Higher-than-normal Russian oil imports at a significant discount to market prices may also limit OMCs’ short-term working capital needs,” it said.

This followed weaker indexes in FY22 as marketing losses weighed on EBITDA and higher crude oil prices boosted working capital needs, partially offset by inventory gains.

“We expect retail prices of petrol and diesel in India to continue to be in line with fluctuations in crude oil prices over the medium term, despite periods of flat retail prices amid the backdrop of a volatile retail environment,” the ratings agency said. volatile oil prices”.

This said, this should drive a gradual improvement in oil marketing companies (OMCs) marketing margins over the remainder of Fiscal Year 23 (2022 to 2023), albeit at a low level. lower than usual.

However, if crude oil prices are to be sustained beyond fundamental assumptions into 2022, record-high retail fuel prices could limit the extent to which the change is passed, weighing on credit indexes. of the OMC.

Three fuel retailers halted daily petrol and diesel price adjustments when five states, including Uttar Pradesh, went to the polls last year. They hit the pause button again after increasing the price by Rs 10 per liter over a two-week period starting at the end of March.

Crude oil prices (from gasoline and diesel) spiked from $84 a barrel to a nearly 14-year high of $139 in early March before paring some of the gains. It is trading at $119.

Fitch said it expects a decline in refined product exports from China, disruptions to product flows due to ongoing geopolitical tensions, and an increase in average distillate consumption for production. power generation to maintain tight supply of petroleum products in Asia in the coming time.

However, the current highs in refining margins will be moderate over the medium term as new capacities increase and supply-side issues improve.

“We believe the high crude oil prices, the recent 110% hike in natural gas prices by the Indian government, and our expectations for a gas price hike in the next reset October 2022, will drive ONGC and OIL’s FY23 earnings and support their investment spending and shareholder distribution,” Fitch added.