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Increasing demand and stable GRMs to bolster OMCs credit profile in FY25

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In Short:

The demand for petroleum products is growing steadily, and the credit profile of oil marketing companies (OMCs) is expected to remain stable in FY25. Refining capacity in India is expected to increase by 24 million tonnes per annum by FY26, driven by stable demand for petroleum products. Upstream companies will benefit from elevated crude oil prices, with the government expected to adjust excise duty rates to maintain profitability for companies.


The Story of Oil Marketing Companies in FY25

Hey there! Let’s talk a little bit about the oil and gas sector for FY25. According to Bhanu Patni, Associate Director at India Ratings and Research (Ind-Ra), the credit profile of oil marketing companies (**OMCs**) is set to stay strong. Why, you ask? Well, the demand for petroleum products is on the rise, gross refining margins (**GRMs**) are holding up well, and oil and gas production is increasing. Sounds like a pretty solid combination, right?

Despite the ups and downs in crude prices, OMCs have managed to keep retail prices relatively stable, ensuring steady margins. This smart move has allowed them to enjoy higher margins during some periods, making up for any lower margins or losses at other times.

Brent futures have seen some fluctuations too, dropping from a high above $91 per barrel to around $83. But with concerns about Middle East conflicts easing and softer market sentiment affecting prices, it’s all part of the oil market’s natural ebb and flow.

Expanding Refining Capacity

Guess what? India is gearing up to add 24 million tonnes per annum (mtpa) of crude oil refining capacity in the next couple of years. The current capacity is almost 257 mt, or 5.02 million barrels per day. With the stable demand for petroleum products in India, refinery capacity expansion is a must. The plan is to add a total of 24 MTPA by FY26.

Increased sales of automobiles, higher investments in road infrastructure, and a robust economy are all contributing to the growing demand for petrol and diesel. This, along with exports, calls for more refining capacity to meet the needs of the market.

Did you know that diesel and petrol make up over half of the petroleum products consumed in India? In FY24, India processed 5.24 mb/d of crude, showing a steady increase over the years.

Looking at Upstream Companies

Upstream companies are also in for a good run, thanks to higher crude oil prices driven by geopolitical conflicts and production cuts by OPEC+ countries. According to Ind-Ra, the government of India is expected to adjust special additional excise duty rates to ensure a net realization level of $70-80 per barrel. This move, combined with increased production of crude and natural gas, is set to boost the EBITDA for upstream oil and gas companies in India.

So, it looks like the oil and gas sector, especially the OMCs and upstream companies, have some exciting developments in store for FY25. Keep an eye on these players as they navigate the ever-changing landscape of the energy market!

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