Weaker rupee clouds the outlook for oil marketing companies

While marketing margin concerns remain, currency depreciation worsens the working capital, interest and forex situation

Forex losses could increase with the rupee’s weakening, fear analysts, even if the refining and marketing margins improve. Refining weakness is attributed to weak cracks, higher fuel cost and unfavourable crude oil differentials. Analysts at HSBC see these trends as transient and Indian refiners could benefit from an expected diesel margin up-cycle on the back of regulations. Marketing margins, while volatile, should gradually recover.

Capacity expansion and the newer and technologically advanced refineries could also drive refining margins further. Bharat Petroleum’s (BPCL’s) ramp-up at its Kochi refinery, for instance. Hindustan Petroleum (HPCL) is also committing to capital expenditure. HSBC says BPCL looks better placed to capture the refining upside, relative to HPCL, whose refinery modernisation programmes might deliver earnings only in 2021-22. Also, BPCL’s exploration portfolio becomes attractive at higher oil prices.