Crude oil prices have remained above $100 per barrel since the Middle East conflict began, pressuring the earnings of Indian state-run oil marketing companies Hindustan Petroleum Corporation (HPCL), Indian Oil Corporation (IOCL), and Bharat Petroleum Corporation (BPCL). Elevated crude costs increase refining and fuel production expenses, squeezing marketing margins if retail fuel prices are not adjusted, according to livemint.com.
Dhaval Popat, Energy Analyst at Choice Institutional Equities, said HPCL faces the highest earnings pressure, followed by IOCL and BPCL. He explained that while stronger refining margins could provide some relief, the sustained high crude prices compress marketing margins, potentially offsetting these benefits. Popat also highlighted that city gas distribution firms like IGL, MGL, Gujarat Gas, and Adani Total Gas could experience margin pressures if increased gas procurement costs cannot be passed to consumers.
The market impact extends beyond oil marketing companies. GAIL and Petronet LNG are exposed to risks from potential volume declines and gas sourcing challenges, although their regulated or contracted business models offer some protection. Popat emphasized that the main earnings risk is not just the crude price level but the companies’ inability to transfer higher input costs to end users, which could further erode profitability compared to peers.
The ongoing elevated crude prices and their impact on Indian state oil companies underscore the challenges in balancing input costs and retail pricing. The next quarterly earnings reports from HPCL, IOCL, and BPCL will provide clearer insights into how these firms are managing margin pressures amid sustained crude prices above $100 per barrel.