Shares of oil marketing companies (OMCs) HPCL, BPCL, IndianOil, Reliance Industries and ONGC have lost 2 per cent since January 1 against the Sensex that fell 1 per cent.
“An almost 30 per cent drop in crude oil prices is bound to unfold massive inventory losses for PSU refiners such as Indian Oil, BPCL and HPCL and also RIL. However, the quantum for RIL could be relatively moderate as the company follows average method for inventory accounting, compared to OMCs, which use ‘first in-first out’ method,” said Nitin Tiwari, analyst, Antique Stock Broking. “In addition to inventory loss, the weakness in core refining margins would further compound worries for refiners.”
According to analysts’ estimates, BPCL, HPCL and Indian Oil EBITDA are likely to fall nearly 80 per cent in the December quarter compared to the 2017 December quarter. Gas companies GAIL, Indraprastha Gas and Petronet LNG are likely to report 15-20 per cent decline in EBITDA, said analysts.
The benchmark Singapore complex weakened to $2.9 per barrel in December 2018 and, therefore, the average for the December quarter stands at $4.2 per bbl compared to $6.1 per bbl in the September quarter.
The margins for 92 RON gasoline plummeted to as low as $1.5-2 per bbl on account of weaker demand and oversupply.
Unless the temperatures fall further, the weakness in GRMs could continue, according to analysts.
“We expect GRM of PSU refiners to be in the range of negative $0.7-3.8 per bbl and decline by $9.3-16.1 per bbl YoY in December quarter,” said said Gagan Dixit, analyst, Elara Capital. “We expect 15 oil & gas firms under our coverage to report a 36 per cent YoY decrease in PAT and 29 per cent decrease in EBITDA, primarily due to weak refining margins.”