October 7, 2023
2 mins read

‘Crude Price Surge Puts Pressure on Indian Oil Companies’

The State-owned oil companies – Indian Oil, BPCL, HPCL – are expected take a hit due to soaring crude prices, according to Moody’s report.

High crude oil prices will weaken the profitability of the country’s three state-owned oil marketing companies — Indian Oil Corporation Ltd, Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) — as they have limited flexibility to pass on higher raw material costs to consumers due to the forthcoming Lok Sabha elections in May 2024, according to a report by Moody’s.

The report points out that the market margins of the three oil companies — the difference between their net realized prices and international prices — have already weakened significantly from the high levels seen in the April-June quarter of the current financial year.

Marketing margins on diesel turned negative since August while margins on petrol have narrowed considerably over the same period as international prices increased. 

The earnings of the three OMCs, all of which enjoy a Baa3 stable rating, will weaken in the second half of fiscal 2024 if oil prices remain elevated at current levels of $85/barrel (bbl) – $90/bbl. Still, full-year earnings will remain comparable with historical levels at this price range, the Moody’s report states. 

The OMCs, however, will start incurring EBITDA losses in the second half of fiscal 2024 if crude oil prices increase to around $100/ bbl.

Nonetheless, we believe high oil prices are unlikely to be sustained for long as global growth weakens, the report adds.

The increase in raw material costs comes after the price of crude oil jumped around 17 per cent to more than $90/bbl in September, from an average of $78/bbl in 1Q fiscal 2024.

On the positive side the report states that the credit metrics of the OMCs will remain well positioned through fiscal 2024. The oil companies will maintain their credit quality, helped by strong balance sheets. Additional capital from the government, if made available, will further support their credit metrics.

Among the three companies, HPCL has the lowest buffer to tolerate a material increase in crude oil prices because of substantial marketing losses in fiscal 2023 which resulted in borrowings, according to the report.

ALSO READ: India urges OPEC chief to infuse sense of affordability in oil markets 

Previous Story

Death Toll Rises As Hamas Fires Rockets to Israel

Next Story

ISRO’s Crucial Test Nears for Human Spaceflight

Latest from Arab News

Famine grips Gaza, WHO warns

WHO said Gaza’s population is facing acute food insecurity under the Integrated Food Security Phase Classification…reports Asian Lite News The World Health Organisation (WHO) has issued its starkest warning yet about the

Lifeline from UAE to Gaza

UAE’s Operation Chivalrous Knight 3 sustains Gaza’s collapsing health system with hospitals, treatment, aid, and vaccines, offering vital relief to thousands amid deepening crisis….reports Asian Lite News The United Arab Emirates has

More Nations Support Palestine State

UAE has hailed the intention of countries such as Malta, Canada, Australia, Andorra, Finland, Iceland, Luxembourg, New Zealand, Portugal, and San Marino to recognise Palestine….reports Asian Lite News The UAE has welcomed

Trump envoy in Israel as Gaza starves

Witkoff is expected to visit US-backed food distribution efforts in Gaza run by the Gaza Humanitarian Foundation (GHF). As the humanitarian catastrophe in Gaza worsens, US President Donald Trump’s special envoy Steve

UK PM, Oman’s Sultan agree to deepen ties

Sultan Haitham welcomes UK’s steps towards recognising Palestine, reaffirms Oman’s support for a two-state solution and lasting peace in the Middle East..reports Asian Lite News Prime Minister Keir Starmer and Oman’s Sultan
Go toTop

Don't Miss

Mumbai NE: Political rollercoaster in Lok Sabha polls

Constituency Watch: Mumbai North East a ‘pendulum’ LS seat, repeated

Two alleged Al Qaeda-linked terrorists held in Lucknow: Police

The two alleged ultras were reportedly hiding in a house