Falling gross refining margins and inventory gains have seen all three public sector oil marketing companies (OMC) post sharp decline in their net profits for the first quarter of the current financial year.
According to details filed with the stock exchanges, Indian Oil Corporation Ltd (IOCL), the country’s largest fuel retailer, saw net profit fall of 47 per cent year-on-year while Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) recorded a net profit fall of 53 per cent each.
“The decrease in profit is due to sharp decline in crude prices in the months of May and June 2019 leading to inventory loses both at refinery and marketing, and also lower average cracks for all products except for LPG and fuel oil,” HPCL chairman and MD Mukesh K Surana said.
Market data shows that Brent crude prices had fallen from nearly $75 per barrel on April 23 to just USD 66.55 per barrel at the end of June, resulting in heavy inventory losses in the case of HPCL and BPCL, and a sharp decline in Indian Oil’s inventory gain on a year-on-year basis.
Oil marketing companies record inventory gains when a company buys raw material (crude oil in case of IOCL) at a given price, but by the time it is able to process and convert it into consumable products (fuel in case of IOCL), prices have moved up. And, since the final product is sold at a prevailing market price, the company books an inventory gain, or a loss, as in the case of HPCL and BPCL.
IOCL reported a consolidated net profit of Rs 3,737.50 crore, or Rs 4.07 per share, compared with Rs 7,092.42 crore, or Rs 7.48 a share, in the corresponding period a year ago, the company said in a statement, adding, “The variation is majorly on account of lower inventory gain during the quarter.”
IOCL recorded an inventory gain of Rs 2,362 crore as opposed to Rs 7,065 crore gain in the April-June 2018 period. Its compatriot HPCL recorded an inventory loss of Rs 535 crore in Q1 compared to an inventory gain of Rs 2,332 crore a year ago, while BPCL recorded an inventory loss of Rs 1,611.56 crore against an inventory gain of Rs 2,304 crore in the first quarter of the previous fiscal.
All three firms’ gross refining margins (GRM) have also tanked sharply during the period. IOCL earned $4.69 on turning every barrel of crude oil into fuel in April-June, down from $10.21 per barrel average GRM in the corresponding quarter of the previous financial year.