“The operating profitability of refining and marketing companies is likely to be adversely impacted in the first quarter of 2021-22 owing to a decline in capacity utilisations, subdued Gros Refinery Margins (GRMs) and marketing margins,” the firm said in a statement.
Owing to the severity of the current Covid wave, several state governments such as Maharashtra, Delhi, Jharkhand and Rajasthan have imposed localised lockdowns and curfews to slowdown the spread, dampening the sales of petrol and diesel.
“Refining and marketing companies are cutting down on capacity utilisation although the demand slowdown is not as severe as April 2020,” said Sabyasachi Majumdar, Group Head & Senior Vice President at ICRA.
The capacity utilisation and revenues and profitability of the refining and marketing companies are likely to be adversely impacted. The GRMs are expected to remain muted owing to the disproportionately higher fuel and losses and operating expenses at lower capacity utilisations, he added.
To make matters worse, international crude oil prices have remained elevated due to the active production management by OPEC+ countries, leading to elevated levels of fuel and losses.
Apart from the impact of low GRMs, the marketing margins of oil marketing companies have remained low in the absence of any increase in retail prices of auto fuels since February 27, 2021, despite the international crude oil prices rising significantly during this period.
While the retail prices of petrol and diesel are expected to be hiked from May onwards, the rise is likely to be calibrated over a period of time, given the resurging pandemic, further impacting operating profitability of oil companies.