Whalesbook
OMCs Face Steep Losses on Fuel Sales
The immediate impact of crude oil prices exceeding $100 per barrel means steep under-recoveries for state-run OMCs. At current retail selling prices, companies are reportedly incurring losses of roughly ₹24.40 per liter on petrol and a substantial ₹104.99 per liter on diesel. To secure domestic energy supplies and limit exports, the government has significantly increased export duties on diesel and aviation turbine fuel (ATF). The levy on diesel exports has more than doubled to ₹55.5 per liter from ₹21.5 per liter, while the duty on jet fuel exports rose to ₹42 per liter from ₹29.5 per liter. This move prioritizes domestic availability but complicates the pricing environment.
Nomura Predicts Benefit from Windfall Tax Rules
Brokerage firm Nomura suggests that windfall tax adjustments could benefit OMCs. Standalone refiners may strike agreements with OMCs to sell diesel and ATF at their export-realized prices, minus the windfall tax. This mechanism could translate into direct savings for OMCs when sourcing these fuels from third-party refiners. Nomura anticipates that OMCs, particularly Hindustan Petroleum Corporation (HPCL), stand to gain significantly. HPCL is expected to benefit as 40% of its diesel retail sales, representing 32% of its total refinery throughput, are sourced from standalone refineries. Nomura's estimates for current integrated margins, including the potential benefit from higher windfall tax, place Indian Oil Corporation (IOCL) at -$2.2 per barrel, Bharat Petroleum Corporation (BPCL) at -$7.3 per barrel, and HPCL at -$18.5 per barrel.