Companies are, however, making a profit of ₹1 on every litre of petrol sold at pumps. This is a sharp contraction in marketing margins for oil companies from the April-June quarter, when lower international fuel prices and static domestic retail rates ensured extraordinary margins. Companies made a marketing margin of Rs 8.6 per litre on diesel and Rs 9 on petrol in the April-June period, according to ICICI Securities’ estimates.
“The combination of sharply higher product spreads, but controlled retail prices ultimately has a negative implication on FY24 estimated earnings for the oil marketing companies,” the brokerage said in a recent report.
Margins on diesel turned negative at the beginning of August as crude oil prices started the steep climb. Crude prices had gained about $10 per barrel in two months to $95 a few days ago, before slipping to around $92.
India’s state-run refiners price their products in line with international prices, which broadly follow the global demand-supply situation while also being affected by non-market forces at times.
The refinery gate prices are a key determinant of companies’ gross refining margins. Companies add marketing margins, storage and transport costs, dealers’ commissions and taxes to the refinery gate prices of petrol and diesel to determine the pump prices.Refining margins for state companies expand when fuel prices rise faster than the crude rates in the international market. But if refiners can’t increase pump prices in line with their refinery gate prices, much of those gains aren’t captured. Companies’ marketing margins suffer, offsetting the refining margin gains.