ICRA Foresees High Crude Prices Squeezing OMC’s Profits

SEATTLE (Oil Monster): Several factors are likely to squeeze the profitability of oil marketing companies (OMCs) in the short-to-medium term, said the latest report by ratings agency, ICRA.

According to the research report, there has been a steady rise in the benchmark Singapore GRMs since December 2021, primarily driven by robust product demand. The surge in demand was mainly on account of overall improvement in mobility coupled with notable resurgence in air travel.

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Despite elevated GRMs, the special additional excise duty imposed by the Indian government on certain refinery products effective July last year has impacted the profitability of refiners. The freezing of retail auto fuel prices for an unusually long period has caused substantial marketing losses for OMCs as well.

The government had sanctioned a one-time grant of INR 22,000 crore in September last year to OMCs to offset the losses incurred on LPG sales. However, OMCs have been demanding release of additional grant by the government to offset the marketing losses on auto fuels, ICRA research report noted.

Meantime, the elevated crude oil prices have delivered robust profitability to upstream oil companies. It must be noted that the domestic gas prices have witnessed significant rise during recent times.