With falling crude oil prices, the net marketing margins of oil marketing companies (OMCs) have improved drastically in the last two months, given the refinery transfer price (RTP) has fallen, and the healthy trend has persisted over most parts of the current quarter. However, finances of the OMCs — Indian Oil, BPCL and HPCL — are expected to remain under pressure due to various factors.
A steep fall in RTP is a result of crude oil prices — which affect international product prices — softening from the highs of $85-plus per barrel in early October to around $50 now.
As per a recent report by ICICI Securities, the net fuel marketing margin — profit made by refiners due to mark-up at which fuel is sold to dealers minus marketing cost — turned from a negative Rs 1.31 per litre on November 15 to a positive Rs 2.39 per litre on November 16 due to an estimated steep fall in RTP. The OMCs did not increase prices during the April-May period.
Refiners use rolling 15-day price of petroleum products in the international markets to arrive at cost of fuel daily using a formula which includes a trade parity price. Various charges such as BS premium, inland freight and delivery charges as also marketing costs and margins of OMCs are added to the TPP — which is also the RTP or the price at which the refiners sell products to OMCs — to find the price to dealers. Read more
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