New Delhi [India], February 4 : Oil Marketing Companies (OMCs) are likely to face near-term challenges due to multiple factors, including no budgetary support for LPG under-recovery, weak Singapore Benchmark Gross Refining Margins (GRM), and declining integrated margins on auto fuel, according to a report by Dolat Capital.
"In the near term, OMCs will remain under pressure mainly due to (1) the absence of budget support for LPG under-recovery; (2) weak Singapore Benchmark GRM at USD 2.4/bbl Q4TD vs. spot of USD 9.6/bbl; and (3) integrated margins on auto fuel at Rs8/lt vs. long term avg. of Rs11.5/lt." says the report
But the report also adds that while the absence of budgetary support for LPG under-recovery remains a concern, the government's decision to not hike excise duty in FY26, alongside lower crude prices, could act as a financial cushion for the OMCs.
Analysts estimate that an additional Rs 2.5 per litre Gross Marketing Margins (GMM) on auto fuels would be sufficient to offset the projected LPG under-recovery for FY25.
The government's decision to keep excise duty unchanged, coupled with falling crude oil prices, suggests that OMCs may continue to earn higher-than-average Gross Marketing Margins (GMM) on auto fuel.
The recently announced FY26 budget projects a modest 3.5 per cent increase in total excise duty collection compared to restated FY25 figures.
Currently, OMCs are earning GMM of Rs 7.5 per litre on a spot basis. Even after accounting for LPG under-recovery impact (Rs 2.5 per litre), the adjusted GMM on auto fuels stands at Rs 5 per litre, still exceeding long-term averages.
Notably, in the first nine months of FY25, OMCs earned Rs 8 per litre GMM on auto fuels, significantly higher than the long-term average of approximately Rs 3.5 per litre.
Despite these potential buffers, OMCs continue to face headwinds. Singapore Benchmark GRM has weakened to USD 2.4 per barrel in Q4 to date, compared to a spot rate of USD 9.6 per barrel.
Furthermore, integrated margins on auto fuel have declined to Rs 8 per litre, below the long-term average of Rs 11.5 per litre.
The FY26 budget allocates Rs 127 billion in total assistance for various projects and schemes but does not directly address LPG under-recovery for OMCs.
India has witnessed a 4.3 per cent year-on-year (YoY) increase in petroleum product consumption in calendar year 2024 (CY24), primarily driven by volume growth.