OMCs' high marketing margins to now face high crude, election test

Margins may go back to Re 1 or Rs 1.5 a litre, if the oil marketing companies aren't able to pass on the crude price hike to the consumer

The marketing margins for oil marketing companies (OMCs) in financial year 2017-18 were estimated to be at their best since 2014-15. Most of the gains have trickled in from the June quarter of the last financial year, coinciding with the introduction of daily price revision for fuel sold at the petrol pumps. These margins now face the risk of erosion due to a combination of high crude prices and state elections going forward. “Marketing margins were healthy for OMCs in FY18, as crude was range-bound for most of the year, daily pricing was adapted and there was not much disruption due to any elections. FY19 is going to be challenging,” said Debasish Mishra, partner at Deloitte Touche Tohmatsu India.

Marketing margin is the difference between the cost at which the product is sourced from the refinery and the price at which it is sold. “The bonanza that the OMCs enjoyed with the daily pricing may be over, and (margins) may now go back to the earlier Rs 1 to Rs 1.5 per litre. We may see that trend again as crude moves up and there is pressure to absorb the (price) increase,” said Rahul Prithiani, director, Crisil Research.

Officials from OMCs are keeping their fingers crossed. “So far we have been able to pass on the rise in crude prices, so margins have been maintained. What will happen from now onwards is difficult to tell,” said an official from one of the three state-run OMCs.