Gross refining margins (GRMs), a measure of profitability for oil refining companies, remained subdued since the onset of the pandemic last year. For perspective: during FY19, FY20 and FY21, GRMs averaged at $4.9 a barrel, $3.2 a barrel and $0.7 a barrel, respectively. Indeed, the declining trend has been a cause for concern.
State-run oil marketing companies (OMCs), which refine crude oil and are engaged in the marketing of auto fuels and other petroleum products, have seen weak GRMs impact their earnings in the recent past. This is despite the fact that marketing margins have remained firm.
OMCs include Bharat Petroleum Corp. Ltd, Hindustan Petroleum Corp. Ltd and Indian Oil Corp. Ltd.
Nevertheless, there is some ray of hope now. The benchmark Singapore GRM has been showing some signs of improvement. “Singapore GRM has improved to $2.4 per barrel in April 2021 (to date) after posting lows of $0.7 per barrel in FY21,” said analysts at Motilal Oswal Financial Services Ltd in a note on 20 April. There has been an improvement largely in petrol crack spreads which, as per the brokerage firm, is on the back of the commencement of the driving season in the US, the largest consumer.
Notably, benchmark Singapore GRMs had averaged at $1.8 a barrel in Q4FY21. For Indian refiners, spreads of gas oil, petrol and jet fuel are more important, said analysts at ICICI Securities Ltd.