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

Clearing A Mess in Gaza

Municipalities across Gaza have mobilized their limited resources to clear streets and set up temporary shelters for thousands of displaced families…reports Asian Lite News The conflict has left behind an estimated 55

Gaza, Malaysia to help Gaza Rebuild

Egyptian, Malaysian leaders discuss Gaza aid, reconstruction amid ceasefire…reports Asian Lite News Egyptian President Abdel Fattah al-Sisi and Malaysian Prime Minister Anwar Ibrahim spoke by phone about efforts to support Gaza’s reconstruction,

Netanyahu to Run Again in 2026

When asked whether he expects to win, Netanyahu said, “Yes.”…reports Asian Lite News Israeli Prime Minister Benjamin Netanyahu has confirmed his bid for re-election in the 2026 parliamentary polls. He made the

UK backs Egypt-led Gaza stabilisation force

Britain takes an advisory and strategic role in US-backed efforts to establish a UN-mandated international force in Gaza and guide reconstruction plans estimated at £50bn…reports Asian Lite News Britain is taking a
Go toTop

Don't Miss

PM Modi departs for South Africa to join BRICS Summit

Prime Minister Modi added that the BRICS  summit will provide

‘Rising Covid cases to push up inflation’

In terms of capital flows, it noted that the hardening