New Delhi [India], March 30 : Despite the government's recent move to cut excise duty on petrol and diesel, oil marketing companies (OMCs) may continue to face negative marketing margins, as rising crude oil prices and controlled retail fuel rates offset the benefits of the tax relief, according to a report by Nomura.
The government on March 27, announced a reduction of Rs 10 per litre in excise duty on both petrol and diesel to ease pressure on OMCs. However, the report noted that the relief may not be sufficient to restore profitability in fuel retailing.
"We estimate that marketing margins for OMCs may continue to be negative despite the excise duty cuts," Nomura said, highlighting that the primary reason remains the sharp increase in crude oil prices while pump prices have largely remained unchanged.
The report pointed out that OMCs are currently absorbing losses on fuel sales due to a mismatch between input costs and retail pricing.
"OMCs are facing significant losses due to a sharp rise in crude oil prices, while retail pump prices have been kept stable," it added.
Data presented in the report pointed showed the severity of the situation. The marketing margin for petrol and diesel remains deeply negative, with estimates showing losses of over Rs 30-40 per litre in key markets like Delhi. This indicates that even after the tax cut, companies are selling fuel below cost.
While the excise duty reduction provides some support, its impact is limited in comparison to the surge in crude prices. As a result, the report suggests that the benefits are insufficient to fully offset the under-recoveries incurred by OMCs.
However, on an integrated basis, factoring in refining and other business segments, the picture appears slightly better.
"On an integrated basis, IOCL may be close to breakeven, while HPCL may still be losing significantly," the report noted.
The analysis highlighted that refining margins and other operational gains may partly cushion the losses in fuel marketing, but not entirely eliminate them.
So, unless retail fuel prices are aligned with global crude trends, OMCs are likely to continue facing pressure on their core marketing business despite policy interventions such as excise duty cuts.
Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor