Indian State Refiners Post Massive Profit Surge Driven by Global Oil Prices and Strong Margins, Not Russian Discounts

State-run oil refining companies in India, including Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Corporation Limited, experienced a remarkable 457% year-on-year increase in combined profits, reaching ₹17,882 crore for the July-September quarter. Mangalore Refinery and Petrochemicals Limited (MRPL) also reported a profit after a loss in the same period last year.

This substantial growth in earnings was largely attributed to favorable global market conditions, specifically a sharp decline in benchmark crude oil prices and robust fuel crack spreads, rather than the discounts offered on Russian crude. Brent crude averaged $69 per barrel in the quarter, down from $80 a year prior, reducing feedstock costs. Simultaneously, crack spreads for diesel increased by 37%, petrol by 24%, and jet fuel by 22%, significantly boosting Gross Refining Margins (GRMs). Indian Oil reported a GRM of $10.6 per barrel, a substantial rise from $1.59 in the previous year.

Despite the continued availability of discounted Russian crude, the reliance on it decreased significantly. Russian crude accounted for only 24% of the state refiners' total crude imports in the second quarter, down from 40% a year ago, according to data provider Kpler. Companies like Indian Oil reported Russian oil making up 19% of their basket, while HPCL stated it was just 5% due to refinery economics.

The strengthening of fuel crack spreads was influenced by low inventories in Asia and Europe, reduced Russian diesel exports, lower Chinese exports of petrol, and strong demand for jet fuel. Additionally, US and European Union sanctions have pressured Indian refiners to scale back purchases from Russian state-owned exporters like Rosneft and Lukoil, leading to increased sourcing from West Asia, the US, and other regions.

Impact: This news is highly impactful for investors in Indian state-run oil companies. The surge in profits indicates strong financial performance, which can lead to improved stock valuations, potential for higher dividends, or share buybacks. It also signifies operational efficiency and effective navigation of global energy markets, reducing reliance on single sources like Russian oil. The diversification of crude sources enhances India's energy security. The overall health of these major Public Sector Undertakings (PSUs) impacts the broader Indian economy and its energy sector stability. Rating: 9/10.

Difficult Terms: Crude Oil: Raw, unrefined petroleum extracted from the ground, which is then processed into fuels and other products. Refiner: A company that processes crude oil into refined petroleum products such as gasoline, diesel, and jet fuel. Year-on-year (YoY): A comparison of a company's performance metric (like profit) in a given period with its performance in the same period of the previous year. Russian Crude: Crude oil originating from Russia. Crude Slate/Basket: The mix of different types of crude oil that a refinery processes. Fuel Crack Spreads: The difference between the price of crude oil and the price of refined petroleum products like gasoline and diesel, representing the refiner's margin. Gross Refining Margin (GRM): The profit made by a refinery from processing one barrel of crude oil into refined products. Sanctions: Penalties imposed by countries or international organizations on other countries, typically involving restrictions on trade or financial transactions.