Page 181 - CW E-Magazine (25-2-2025)

Special Report Special Report

Oil price outlook: Brent Crude to average between 20 prices for online payments or fuelling
during non-peak hours.
$75-$80 over next 6 months 15
10 Given CareEdge Ratings’ expecta-
SYNOPSIS 5 tions of stable crude oil prices and lower
GRMs, retail margins of OMCs are
lobal crude oil prices witnessed - expected to remain healthy in the range of
a sequential declining trend on 100 93.15 85.21 FY22 FY23 FY24 Q1FY25 H1FY25 9MFY25 Rs. 7-9/litre if there is no cut in retail
Ga quarterly average basis post 90 79.18 82.58 78.70 BPCL IOCL HPCL Singapore Benchmark prices.
Q1FY25. Although it went up sharply 80 73.63 Fig. 2: Trends in GRMs for public sector OMCs, US$/bbl
in January 2025, CareEdge Ratings 70 Source: Company Annual Reports, Quarterly results and CareEdge Ratings CareEdge Ratings’ View
expects Brent crude oil prices to hover 60 to a signifi cant increase in demand for increase in their sourcing cost from According to Hardik Shah, Director
in the range of $75-$80/bbl on average 50 diesel as an alternate fuel by major refi neries (wherein refi nery gate prices at CareEdge Ratings:
during the next six months. This is envi- 40 European countries, resulting in very high were high due to crude prices & high  Crude oil prices are expected to

saged to be primarily driven by the new diesel cracks. GRMs). Retailing margins of OMCs, remain range bound at an average of
US Government’s stance of ramping up 30 however, improved signifi cantly in $75-$80/bbl in coming six months
its crude oil production, OPEC countries 20 GRMs of Indian refi ners, however, FY24 mainly because retail prices were essentially on the back of higher overall
continuing to largely maintain their pro- 10 moderated in FY24 due to a decline in kept constant whereas cost of petrol and global crude oil production aided by
duction levels and no major disruption 0 the level of discount available on diesel declined for them due to reduction an increase in crude oil production by
in the supply of Russian crude oil. On FY22 FY23 FY24 Q1FY25 Q2FY25 Q3FY25 Russian crude oil from around $13/bbl in in crude oil prices and lower GRMs for the US, no production cuts by OPEC,
the other hand, demand growth is ex- Fig. 1: Average crude oil prices (Indian basket), US$/bbl FY23 to $9/bbl in FY24, leading to refi ners leading to lower refi nery trans- and no disruption in the supply of
pected to be relatively subdued in the Source: PPAC higher overall cost of crude oil sourcing fer pricing for fuel retail operations. Russian crude oil.
backdrop of a slowdown in major global remain healthy in the range of Rs. 7-9/ six-month period on the back of the new for Indian refi ners despite the share of  Improved retail margins of OMCs
economies. litre, which provides some scope for US Government’s plan to ramp up its Russian crude oil in India’s total crude Retailing margins, however, declined are expected to offset the impact of
rationalisation of retail prices of petrol & crude oil production, OPEC countries sourcing increasing further to ~38% in in Q1FY25 mainly due to a reduction reduced GRMs, whereby integrated
Indian Public Sector Oil Marketing diesel that have largely remained largely continuing to maintain their pro- FY24. Apart from this, the exception- in retail prices of petrol & diesel by players having a presence in both
Companies (OMCs) observed a soften- stagnant since long. duction levels, and no major disruption ally high diesel cracks witnessed earlier Rs. 2/litre from March 2024, the full refi ning & fuel retailing businesses are
ing of their Gross Refi ning Margins in supply of Russian crude oil – cumu- also normalised to an extent in FY24 impact of which was observed in Q1FY25. expected to be better off compared to
(GRMs) during 9MFY25 to an aver- Sequential decline in crude oil prices latively leading to higher supplies. Con- with the gradual realignment of global With the decline in crude oil prices and standalone refi ners.
age of $4.80/bbl, compared to $11.75/ Upon the outbreak of the Russia- comitantly, in the backdrop of global energy supply chains. GRMs continued reduced GRMs, the profi tability of the  Good retail margins in the domestic

bbl in FY24 and $17/bbl in FY23. This Ukraine war in February 2022, average economic slowdown and higher thrust to decline through 9MFY25 due to fur- retailing business signifi cantly improved market have resulted in Indian players
was mainly due to a decline in discounts crude oil prices shot up in FY23. With towards Electric Vehicles (EVs) and ther reduction in discounts on Russian in Q2FY25 and Q3FY25 on the back of focusing more on expanding their
available on sourcing Russian crude some normalcy in its supply, the crude alternate fuels, demand for crude oil is crude oil to ~$3/bbl and reduced pro- constant retail prices. Accordingly, from . retail network rather than focusing on
oil and a reduction in product cracks, oil prices declined on average in FY24, unlikely to go up signifi cantly, which duct cracks due to economic slowdown, January 2025, some fuel retailers have exports, which was more lucrative,

especially diesel, which had previously albeit it remained elevated due to a spike should also support our crude oil price albeit it witnessed a marginal uptick in started to provide discounts on retail especially during FY23.
gone up sharply in the aftermath of the witnessed in its prices in the immediate range expectation. Q3FY25 due to seasonal improvement
Russia-Ukraine war. Going forward, aftermath of the Israel-Hamas confl ict in demand for certain products during 10 9.0
CareEdge Ratings expects the GRMs of from October 2023. Due to logistical Declining GRMs winter. Going forward, with a shrink- 8 7.4
Indian PSU OMCs to remain in the range challenges arising from the Red Sea GRMs of Indian crude oil refi ners ing discount on Russian crude oil and 6.8
of $4-$6/bbl in the coming six months. crisis, crude oil prices again went up in increased signifi cantly in FY23, mainly modest product cracks, GRMs of 6
Q1FY25. Thereafter, crude oil prices for two reasons. Firstly, the share of Indian OMCs are expected to remain in 4.1 4.9
Blended retail margins on petrol & continued to witness a sequential decline Russian crude oil in India’s total crude the range of $4-$6/bbl in the coming six 4
diesel for fuel retailers have improved in Q2FY25 and Q3FY25, which was the oil basket jumped from less than 2% in months period. 2
sharply in Q3FY25 to around Rs. 9/litre result of a slowdown in the economic FY22 to nearly 25% in FY23, wherein
on the back of a decline in crude oil prices growth of major global economies. At there was a heavy discount of around Healthy retail/marketing margins 0
and moderation in GRMs of OMCs. the same time, there was no production $13/bbl, leading to a lower cost of crude on petrol & diesel
Given our expectation that crude oil cut by OPEC countries. oil procurement for Indian refiners. Amidst very high GRMs in FY23, -2
prices are unlikely to go up signifi cantly Secondly, due to the outbreak of the Russia- the PSU OMCs incurred losses in their -4 -2.0
and GRMs are also expected to remain Going forward, Brent crude oil prices Ukraine war and the resultant sanctions retailing operations in FY23 because FY22 FY23 FY24 Q1FY25 Q2FY25 Q3FY25
range-bound during the next six months, are expected to hover in the range of imposed on Russia, gas supply from retail prices of petrol & diesel remained Fig. 3: Blended marketing margins, Rs./litre
we expect the blended retail margin to $75-$80/bbl on average in the coming Russia to Europe was disrupted, leading largely unchanged despite a signifi cant Source: CareEdge Ratings

2
180 Chemical Weekly February 25, 2025 Chemical Weekly February 25, 2025 181

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