OMCs face a cumulative loss of close to Rs 7,200 crore over a period of six months due to a Re 1 cut in fuel prices by the govt last month
Though the US waiver on Iran oil has brought some relief to India, albeit temporary, it is likely to help the domestic refinery companies improve their balance sheet which was strained after the government last month asked them to cut fuel prices by Re 1. The government's decision asking the oil marketing companies (OMCs) to absorb a Re 1 cut on petrol/diesel is expected to impact their marketing margins severely leading to a cumulative loss of close to Rs 7,200 crore over a period of six months, according to industry executives and experts. However, the fresh development will now help the refiners improve their margins, and subsequently ease the government concerns on cutting down taxes on the fuel in the run-up to the election year.
K Ravichandran, group head & senior VP, corporate ratings, Icra Ltd said that during the interim period of waiver, Indian refiners will be able to enjoy a better margin and credit periods. "This will help in softening crude prices and will bring another small decline in its price," said Ravichandran. The fuel prices have softened in recent days prior to the kick off sanction deadline.
The executives at the OEMs said that they are awaiting the formal clarity from the government before they can go ahead with any further plans to purchase oil from Iran.
Abhishek Bansal, founder and chairman of currency derivative and broking firm ABans group, said US's waiver for India on Iran crude oil purchase has given a sense of relief for the Indian OMCs, as they can now procure cheaper oil from Iran on lucrative terms which are cost effective. The positive impact can be expected on current account deficit and on currency front which is likely to strengthen against the dollar.
"Equity market has shown a smart recovery in the last three sessions on the recent decline in crude prices and further upside is possible if these waivers are confirmed," said Bansal. "We expect oil supply to increase in the near term which could keep oil prices under pressure, medium-term support is seen near $70.40-$ 69.80 " Bansal added.
Trump administration is considering providing waivers to eight countries including India on oil purchases from Iran, though the official announcement is yet to be made. The development will help these companies plan their future orders of oil from Iranian at a cheaper rate. The US announced sanctions on Iran which came into effect on November 4. India, which imports around 80% of its fuel requirement, has been lobbying aggressively to get exemptions on the purchase of oil from Iran.
According to industry insiders, the government held several meetings with the US administration in order to get a waiver from the sanctions. However, at the same time, the government sent feelers that it will continue to buy crude despite the sanction to meet its massive domestic demand.
For instance, Indian Oil Corporation (IOC) and Mangalore Refinery and Petrochemicals Ltd (MRPL) have reportedly placed orders for 1.25 million tonne (mt) of crude oil from Iran. The government data showed that India's crude oil imports from Iran jumped 10.19% to 1.73 mt in September. Cumulatively, the data reveals that oil imports from Iran in the first six months (April to September) of the current financial year increased 39% to 15.05 mt from 10.84 mt imported in the corresponding period a year ago. According to an estimate, India consumes roughly 100 million litre of petrol and 275 million liter of diesel on daily basis.
The latest Petroleum, Planning and Analysis cell (PPAC) report claim that PSU oil companies have been on an expansion spree together investing Rs 75,611 crore , Rs 1,06,133 crore, Rs 1,28,981 crore during 2015-16, 2016-17 and 2017-18, respectively.
The government deregulated petrol price in 2010 and diesel in 2014. Further, the Centre last year based on international practices allowed daily pricing mechanism wherein fuel prices change each day instead of every fortnight.
However, industry observers point out that OEMs in the past refrained from increasing the fuel prices for a couple of weeks ahead of elections.
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According to industry insiders, the government held several meetings with the US administration in order to get a waiver from the sanctions. However, at the same time, the government sent feelers that it will continue to buy crude despite the sanction to meet its massive domestic demand.
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