Petrol Margins Turn Positive as OMC Losses Ease in Q2FY27
State-run oil marketing companies see petrol margins swing to profit as fuel marketing losses ease in the September quarter.
State-run oil marketing companies (OMCs) have witnessed a significant turnaround in their financial performance for the September quarter. According to a report by Emkay Research, fuel marketing losses have narrowed sharply, driven by a combination of cooling crude oil prices and the full realization of retail fuel price hikes.
A Major Swing in Petrol Margins
The most striking development in the oil and gas sector preview is the recovery of petrol marketing margins. After facing heavy losses in the previous quarter, petrol margins have swung into positive territory. Emkay estimates that petrol marketing margins—excluding the impact of the windfall levy—improved to Rs 2.9 per litre in Q2FY27, a massive jump from the Rs 12 per litre loss recorded in the June quarter.
This recovery follows a period of intense pressure on OMCs during the June quarter, where high crude oil costs had severely squeezed their margins.
Diesel and LPG: Narrowing the Deficit
While petrol has moved into the black, diesel remains a challenge for the industry. However, the bleeding has slowed down significantly. The report highlights the following shifts:
- Diesel Marketing: Losses narrowed to Rs 16.7 per litre, compared to a much steeper loss of Rs 32 per litre in the preceding quarter.
- LPG Under-recoveries: Losses on domestic LPG sales also saw a decline, with under-recoveries narrowing to approximately Rs 290 per cylinder.
- Aviation Turbine Fuel (ATF): Margins for ATF also showed improvement, bolstered by regular price increases that were implemented starting in July.
The Role of Crude Oil Volatility
The financial landscape for OMCs has been heavily influenced by the fluctuating cost of Brent crude. During the September quarter, Brent crude averaged around USD 97 per barrel, representing a 6 per cent decrease from the previous quarter.
However, the quarter ended on a volatile note. While prices were lower on average, crude ended the period at approximately USD 120 per barrel, a sharp rise from the USD 72 per barrel seen at the end of Q1. This sudden surge toward the end of the quarter is expected to trigger "significant inventory gains" for several refiners, providing further support to their earnings outlook.
Overall, the combination of improved petrol margins, reduced LPG under-recoveries, and better ATF performance is expected to provide a strong cushion for OMC earnings throughout Q2FY27.