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Excise Duty Cut Fails to Stop OMC Losses as Crude Prices Soar: Nomura

A Nomura report states that the recent excise duty reduction on fuel is inadequate to restore profitability for oil marketing companies (OMCs). The primary issue is the sharp rise in crude oil prices while retail pump prices have remained largely stable, forcing OMCs to absorb significant losses. Marketing margins for petrol and diesel remain deeply negative, with estimated losses of over Rs 30-40 per litre in key markets. Even on an integrated basis, some OMCs may only be near breakeven, indicating continued pressure unless retail prices are adjusted.

Key Points: Fuel Tax Cut Insufficient as OMCs Face Losses: Nomura

  • Excise duty cut insufficient
  • Crude prices sharply higher
  • Retail pump prices unchanged
  • OMCs absorbing heavy losses
  • Integrated business offers partial cushion
2 min read

Excise duty cut fails to offset oil marketing companies' losses amid rising crude prices: Nomura

Despite excise duty cuts, oil marketing companies face negative margins due to high crude prices and stable retail fuel rates, says Nomura report.

"We estimate that marketing margins for OMCs may continue to be negative despite the excise duty cuts - Nomura"

New Delhi, March 30

Despite the government's recent move to cut excise duty on petrol and diesel, oil marketing companies may continue to face negative marketing margins, as rising crude oil prices and controlled retail fuel rates offset the benefits of the tax relief, according to a report by Nomura.

The government on March 27, announced a reduction of Rs 10 per litre in excise duty on both petrol and diesel to ease pressure on OMCs. However, the report noted that the relief may not be sufficient to restore profitability in fuel retailing.

"We estimate that marketing margins for OMCs may continue to be negative despite the excise duty cuts," Nomura said, highlighting that the primary reason remains the sharp increase in crude oil prices while pump prices have largely remained unchanged.

The report pointed out that OMCs are currently absorbing losses on fuel sales due to a mismatch between input costs and retail pricing.

"OMCs are facing significant losses due to a sharp rise in crude oil prices, while retail pump prices have been kept stable," it added.

Data presented in the report pointed showed the severity of the situation. The marketing margin for petrol and diesel remains deeply negative, with estimates showing losses of over Rs 30-40 per litre in key markets like Delhi. This indicates that even after the tax cut, companies are selling fuel below cost.

While the excise duty reduction provides some support, its impact is limited in comparison to the surge in crude prices. As a result, the report suggests that the benefits are insufficient to fully offset the under-recoveries incurred by OMCs.

However, on an integrated basis, factoring in refining and other business segments, the picture appears slightly better.

"On an integrated basis, IOCL may be close to breakeven, while HPCL may still be losing significantly," the report noted.

The analysis highlighted that refining margins and other operational gains may partly cushion the losses in fuel marketing, but not entirely eliminate them.

So, unless retail fuel prices are aligned with global crude trends, OMCs are likely to continue facing pressure on their core marketing business despite policy interventions such as excise duty cuts.

- ANI

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Reader Comments

P
Priyanka N
As a small business owner who runs a fleet of vehicles, any price stability is welcome. But I worry this is just kicking the can down the road. If OMCs keep bleeding, eventually they'll have to raise prices sharply or cut investments. The government should allow more frequent, smaller price revisions instead of these sudden shocks.
A
Aman W
Feel bad for the OMC employees. Their companies are taking massive hits to shield us from global volatility. We complain about prices but don't appreciate this buffer. Hope the situation improves soon for everyone.
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Sarah B
The integrated business analysis is key here. It shows the system has some resilience. While the marketing side is hurting, refining might help balance the books somewhat. It's a complex ecosystem.
V
Vikram M
The root cause is our dependence on imported crude. Until we seriously ramp up domestic production and alternative energy (solar, EVs), we will always be at the mercy of international prices. This is a national security issue, not just an economic one. Jai Hind! 🇮🇳
K
Karthik V
With great respect, I think the policy is well-intentioned but flawed. Absorbing losses damages the financial health of vital PSUs, which impacts their ability to invest in infrastructure and technology. A more transparent pricing mechanism, even if it means slightly higher but stable prices, would be better in the long run.

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