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CareEdge Ratings expects Brent crude oil prices to hover in the range of $75-$80/bbl on an average during the next six months. Going forward, CareEdge Ratings expects demand growth to remain relatively subdued in the backdrop of a slowdown in major global economies and higher thrust towards Electric Vehicles (EVs) and alternate fuels.

Upon the outbreak of Russia-Ukraine war from February 2022, average crude oil prices shot up in FY23. With some normalcy in its supply, the crude oil prices declined on an average in FY24; albeit it remained elevated due to a spike witnessed in its prices in the immediate aftermath of the Israel-Hamas conflict from October 2023. On the back of logistical challenges arising due to the Red sea crisis, crude oil prices again went up in Q1FY25. Thereafter, prices of crude oil have continued to witness a sequential decline in Q2FY25 and Q3FY25 on the back of slowdown in economic growth of major global economies while there was no production cut by OPEC countries. Although, it went up sharply in January 2025. 

Hardik Shah, Director at CareEdge Ratings said, “Crude oil prices are expected to remain range bound at an average of $75-$80/bbl in coming 6 months’ time essentially on the back of higher overall global crude oil production aided by increase in crude oil production by the US while there are no production cuts by OPEC and no disruption in supply of Russian crude oil. Improved retail margins of OMCs are expected to offset the impact of reduced GRMs whereby integrated players having presence in both refining & fuel retailing businesses are expected to be better-off compared to standalone refiners. Also, good retail margins in domestic market has resulted in Indian players focusing more on expanding their retail network rather than focusing on exports which was more lucrative especially during FY23.”

GRMs of Indian refiners, had gone up significantly in FY23, however, it moderated in FY24 due to decline in level of discount available on Russian crude oil from around $13/bbl in FY23 to $9/bbl in FY24 leading to higher overall cost of crude oil sourcing for Indian refiners despite the share of Russian crude oil in India’s total crude sourcing increasing to ~38% in FY24 vis-à-vis 25% in FY23. Though, GRMs continued to decline through 9MFY25 due to further reduction in discounts on Russian crude oil to ~$3/bbl and reduced product cracks due to economic slowdown; albeit it witnessed a marginal uptick in Q3FY25 due to seasonal improvement in demand for certain products during winter.

CareEdge Ratings observed a softening of Indian Public Sector Oil Marketing Companies (OMCs) Gross Refining Margins (GRMs) during 9MFY25 to an average of $4.80/bbl compared to $11.75/bbl in FY24 and $17/bbl in FY23. This was mainly due to decline in discounts available on sourcing of Russian crude oil along-with reduction in product cracks especially diesel which had previously gone up sharply in the aftermath of the Russia-Ukraine war. Going forward, CareEdge Ratings expects GRMs of Indian PSU OMCs to remain in the range of $4-$6/bbl in the coming 6 months’ time.

Amidst very high GRMs in FY23, the PSU OMCs incurred losses in their retailing operations in FY23 because retail prices of petrol & diesel remained largely unchanged despite significant increase in their sourcing cost from refineries (wherein refinery gate price was high due to crude prices & high GRMs). Retailing margins of OMCs, however, improved significantly in FY24 mainly because retail prices were kept constant whereas cost of petrol and diesel declined for them due to reduction in crude oil prices and lower GRMs for refiners leading to lower refinery transfer pricing for fuel retail operations. Retailing margins, however, declined in Q1FY25 mainly due to reduction in retail prices of petrol & diesel by Rs.2/litre from March 2024, full impact of which was observed in Q1FY25. With decline in crude oil prices and reduced GRMs, profitability of retailing business significantly improved in Q2FY25 and Q3FY25 on the back of constant retail prices. Accordingly, from January 2025, some fuel retailers have started to provide discounts on retail prices for online payments or fueling during non-peak hours. Given expectation that crude oil prices are unlikely to go up significantly and GRMs are also expected to remain range-bound during the next six months, CareEdge Ratings expect the blended retail margin to remain healthy in the range of Rs.7-9/litre, which provides some scope for rationalization of retail prices of petrol & diesel that have largely remained stagnant since long.

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