During the fourth quarter of FY15, crude oil price witnessed a sharp fall to $54 per barrel compared to $108 per barrel a year ago, driven by a strong rise in supply from the US and demand-supply imbalance.
While average oil prices were weaker 28 per cent quarter on quarter, they were also relatively stable during the fourth quarter. Thus, inventory losses, say analysts are likely to be much lower for refiners.
Inventory losses occur when despite high crude oil prices, the refiners are forced to sell refined products at lower prices, due to their inability to pass on the high input cost to customers.
Indian Oil Corporation (IOCL), nation's largest refiner along with Bharat Petroleum Corporation and Hindustan Petroleum Corporation may yet again be hit with inventory losses. IOCL was the hardest hit last quarter reporting inventory loss of Rs 12,842 crore. While BPCL lost Rs 1,600 crore and HPCL Rs 1,800 crore.
Consequently, IOC and HPCL reported net losses for the third quarter while BPCL reported marginal post-tax profit. IOC, with a refining capacity of 65.7 million metric tonnes per annum (mtpa), equivalent to 30 per cent of the country’s total refining capacity, saw its net loss widen to Rs 2,636.80 crore during last quarter.
While BPCL reported a net profit of Rs 551.16 crore for the December quarter, HPCL reduced its net loss to Rs 325.38 crore in the October-December quarter.
In addition to this under-recoveries could impact the earnings. "We assume the government will provide full support for fourth quarter under-recoveries. OMC’s financials will be severely impacted if companies are asked to bear some of the losses," said Nomura Securities International in its report.
Gross refining margin for all three oil marketing companies is expected to increase and come in the range of $5-$6.5 per barrel.
For upstream companies, assuming the government of India will provide for the entire fourth quarter under-recoveries, subsidy pay-out by upstream would be nil, helping their finances. Oil and Natural Gas Corporation which saw a 2 per cent growth in oil production may report a flat growth in gas production.
"Net oil realisation is expected to increase to 64 per cent year on year to $53.9 per barrel," said IDBI Capital in its report. Oil and Natural Gas Corporation which ended its seven year period of year-on-year production decline, saw its FY 15 production flat.
Crude oil and gas production for Oil India is expected to rise by 11 per cent year on year and net realisation to increase 42 per cent year on year to $53 per barrel.
For Gail on the other hand, sharp fall in LPG prices and higher gas price is expected to hurt its profits which would be partially offset by nil subsidy payout.
Nomura said, it expects a weak quarter for Gail with likely losses in the petrochemicals and gas marketing segments. "We expect gas transmission volumes to decline to 88 million metric standard cubic metres per day for fourth quarter, driven primarily by lower LNG offtake."