New Delhi: Amid the ongoing geo-political tensions, unchanged retail fuel prices amid the volatile oil prices will support overall returns for the industry, according to a report on Thursday. Operating profit will be higher than the $9-11 per barrel on average over the 10 years through fiscal 2025. This will partly support the continued substantial capital expenditure (capex) of Oil marketing companies (OMCs), said a CRISIL Ratings report.

OMCs are projected to see operating profit drop to $12-14 per barrel in fiscal 2025 from $20 per barrel last fiscal. The moderation is expected as diesel spreads soften, discounts on Russian crude oil wane and the impact of inventory loss kicks in with crude oil price averaging $75 per barrel currently, down from $82 per barrel in the first half of the fiscal.

According to Aditya Jhaver, Director, CRISIL Ratings, gross refining margin (GRMs) are seeing a steep correction this fiscal and are likely to average $3-5 per barrel, with diesel spreads evening out as refineries globally have ramped up production while consumption has slowed.

“That said, overall returns will be bolstered by marketing margins (net of operating expenses) that are likely to continue at Rs 4.5 per litre (or $9 per barrel), factoring no reduction in retail fuel prices,” he noted. OMCs earn from two businesses — refining business and marketing business.

While oil price declined 11 per cent on-year to average $83 per barrel in fiscal 2024, the fluctuation in inventory value had a marginal impact on overall GRM (reported at $12 per barrel). Core margins were healthy because of high diesel spreads with continued geopolitical uncertainties that disrupted the global energy supply chain keeping international prices high.

Further, the largely unchanged retail fuel rates resulted in healthy marketing margins (net of operating expenses) of Rs 4 per litre or $8 per barrel, cumulating to an overall high profit of $20 per barrel for the year, the report mentioned.

The consequent cumulative cash accrual, estimated at Rs 52,000-54,000 crore, will partially support the Rs 90,000 crore capex planned by OMCs. “While profits could moderate on-year, the industry is expected to continue with capex, which will partly be debt funded,” said Joanne Gonsalves, Associate Director, CRISIL Ratings.