Oil prices have breached the $100 per barrel threshold this month, with Brent crude trading around $107 as US-Iran tensions have stoked supply concerns. According to The Economic Times, this sharp price increase is expected to significantly impact retail fuel marketing margins, which are projected to turn negative in September. The volatility in oil markets, with a leap in spring, then a release, now returned to over $100 per barrel, is creating purchasing pressure on Asian suppliers, particularly affecting polyester production costs which represent a significant share of LPP's material costs.
Retail fuel marketing margins are expected to turn into losses of ₹7.4 per litre for petrol and ₹10.3 per litre for diesel in September, as reported by ICICI Securities estimates. However, these losses are unlikely to completely erase the improvement seen during the first two months of the quarter, when marketing margins were more favorable. The margin compression is attributed to rising crude oil prices, which compress GRMs of OMCs because retail prices of petroleum products such as diesel and petrol do not adjust immediately.
The broker estimates marketing margins at ₹2.9 per litre for petrol and ₹1.3 per litre for diesel for each of the three oil marketing companies in the September quarter, compared with losses of ₹6.1 and ₹18.9 per litre, respectively, in the June quarter. Each of the three OMCs including Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation reported net losses in the June quarter amid suppressed marketing margins. Strong refining margins remain the key cushion against deterioration in retail fuel margins, with Singapore Gross Refining Margins (GRM) averaged $24.5 per barrel during April-August, well above the FY21-26 average of $5.6 per barrel.
Emkay Global Financial Services expects OMC margins to improve substantially to around ₹9-14 per litre in the current quarter, compared with ₹1-3 per litre in the June quarter. The improvement is attributed to the full impact of auto-fuel price increases announced in May and the recovery in crude prices to around $68 per barrel in the first half of July as West Asia tensions eased. However, looking ahead to 2027, the company anticipates gross margin may ease to about 56% as the Polish złoty weakens and purchase prices rise, with management building these assumptions into their outlook.
