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Marketing losses to dent OMCs’ earnings…

Supply concerns keep oil prices elevated…

Oil prices continued to trend at elevated levels in Q1FY23 amid concerns over supply disruption following the geopolitical conflict in Europe. Average crude oil prices increased by US$13.3/bbl QoQ to US$112.8/bbl. On a closing basis, crude oil prices increased US$8.4/bbl QoQ to US$115/bbl. APM gas realisation was up 110% as domestic APM gas prices were revised upwards from April. Similarly, ceiling price for gas from deepwater fields was also higher by 62% in Q1FY23. Hence, net realisations of upstream companies are estimated to improve YoY as well as QoQ.

Strong GRMs for refiners; marketing losses a negative for OMCs

Benchmark Singapore GRMs saw a sharp rise and were at US$21.5/bbl in Q1FY23 vs. US$8.1/bbl in Q4FY22. Low grade fuel oil is a significant component of benchmark whereas for Indian refiners, cracks of gas oil, gasoline and jet fuel are more important. Transport fuels constitute 55-60% of refining slate. Cracks for gas oil increased US$23.7/bbl QoQ to US$43.8/bbl while gasoline product cracks saw an increase of US$18.1/bbl QoQ to US$35.6/bbl. Jet fuel cracks saw growth of US$22.7/bbl to US$40/bbl. Overall, GRMs for refiners are expected to improve QoQ and are anticipated to be in the range of US$25-27/bbl. Refining segment earnings are likely to be further supported by inventory gains. On the marketing front, marketing volumes are expected to grow in the range of 19-21% YoY. In terms of marketing margins, we estimate losses as OMCs did not pass on higher crude oil costs to customers. We also note that the companies are likely to face marketing inventory losses owing to excise duty cut in May. We expect one OMC to report ~68% QoQ decline in earnings while the other two OMCs are expected to report losses.

CGD sales grow YoY; price hikes amid rise in gas sourcing costs

Sales volumes of city gas distribution (CGD) companies are expected to grow YoY (on a favourable base). Companies with high CNG contribution are expected to grow 38-49% YoY. Companies with high PNG contribution in sales mix are expected to report weaker sales growth YoY due to muted industrial offtake. On the cost front, CGD companies are expected to incur high gas sourcing costs as domestic gas prices were revised by 110%. Also, spot LNG prices continue to trend at higher level. Hence, in spite of price hikes taken during the quarter, we expect gross margins to decline YoY. For large gas utility companies, LNG import volume is estimated to fall YoY.

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