New Delhi [India], September 23 (ANI): India's oil marketing companies (OMCs) may see a sharp recovery in petrol and diesel margins in the second quarter of FY27, although continued losses on LPG sales could limit the overall benefit, according to a report by JM Financial Institutional Securities.
The brokerage expects the combined refining and marketing margin on petrol and diesel to rise to Rs 11.4 per litre in Q2FY27, from Rs 2.4 per litre in the previous quarter.
However, after factoring in losses from LPG sales, the effective margin is expected to be lower at Rs 8.5 per litre.
JM Financial said the combined petrol and diesel margin is likely to recover, but could still remain around Rs 1 per litre below the historical average of Rs 12.5 per litre.
The report estimates that OMCs could incur LPG losses of around Rs 11,000 crore in Q2FY27, down from Rs 21,200 crore in the first quarter.
According to the brokerage, LPG losses could reduce the benefit from petrol and diesel refining and marketing margins by around Rs 2.9 per litre in Q2FY27, compared with Rs 5.6 per litre in the previous quarter.
The report said refining margins are continuing to receive support from disruptions in global petroleum product supplies.
"Refined product cracks may remain strong in near term as product markets continue to be tight," JM Financial said.
It noted that global refinery throughput has declined by around 4-5 million barrels per day from a year earlier. Refinery disruptions in the Middle East and Russia, along with lower operations at some Asian refineries, have contributed to tighter product supplies.
The brokerage said the Singapore refining margin averaged USD 20.5 per barrel during the second quarter of FY27 for the period covered by its report. Strong diesel margins, which averaged USD 61.7 per barrel, supported the overall refining margin.
However, JM Financial said the recovery in fuel retailing profitability would remain sensitive to crude oil prices.
The brokerage estimates that OMCs could earn normal margins at a landed Brent crude price of around USD 95 per barrel under the current fuel pricing and tax structure.
It added that if the government completely reverses earlier excise duty cuts and retail fuel prices are increased, OMCs would need landed crude prices to fall to around USD 65 per barrel to restore normal margins.
This compares with an earlier estimate of USD 70 per barrel before the Middle East crisis, with the change attributed to rupee depreciation and higher transportation costs. (ANI)
OMCs may see petrol, diesel margins recover in Q2FY27, LPG losses to limit gains: JM Financial
