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Oil & Gas Sector – Marketing Margins Hit 10-Month High, Upgrading Estimates, View On OMCs: ICICI Securities

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Blended marketing margin for petrol and diesel (based on refinery transfer price averages ending Dec 13) reached a 10-month high of Rs 2.4/litre (margins assuming Dec 13 prices only at a higher Rs 6.4/litre), with average gross refining margins for Q3 to-date sustaining at $13-16/barrel of oil for the three oil marketing companies.

This is a material improvement from H1 FY23 performance for OMCs.

Our estimates suggest that with weaker international prices, retail margins will comfortably exceed breakeven levels for H2 and will be stronger at Rs 2-3/litre for FY24E as well.

We believe current levels of crude prices will see an uptick, driven by the steady re-opening of China and tight supply. However, given the counter forces of economic weakness in Europe and slowing demand in U.S., prices may remain in a narrow range of $85-90/bbl.

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