New Delhi, June 27
The worst phase for oil marketing companies may be over due to smart recovery in the sales of both petrol and diesel in May and June, with India gradually unlocking itself from the lockdowns imposed to contain COVID-19 spread.

According to a research report by ICICI Direct, though sales were down 45% in April due to the lockdown for almost all oil marketing companies, mainly the country's largest fuel retailer Indian Oil Corporation (IOC), it recovered sharply in May and June. Petrol and diesel demand is currently at 85-89 per cent of the normal level.

With fuel prices revised upwards for the last three weeks starting June 7, and IOC having hiked retail prices by Rs 9-10/litre in June, the marketing situation of oil companies would once again get steadied.

But the brokerage has taken a cautious approach over the fortune of IOC going ahead as pressure points remain in terms of declining refining margins.

The gross refining margin (GRM) is the difference between the value of petroleum products such as petrol and diesel when they leave the refinery and the value of the crude oil entering the refinery.

The GRM for IOC has fallen off the cliff from a high of $8.5 per barrel in FY18 to an estimated $0.1 per barrel in FY20. Even going ahead, the recovery is expected to stabilise around $4 a barrel (less than half of FY18 levels) in FY21 and FY22, the brokerage has said.

"Benchmark Singapore GRMs are currently very low with some recovery witnessed recently. Improvement in petrol & diesel spreads will be important for stable GRMs. Going forward, we estimate GRMs at $4/bbl for both FY21E and FY22E," ICICI Direct said in its report.

IOC's marketing sales degrew 4.5% YoY to 20.7 million tonnes on account of lower diesel sales. Going forward, considering the extended lockdown in Q1FY21E, we expect marketing sales at 81.5 MT and 92 MT for FY21E and FY22E respectively, the report said.

The estimate for crude throughput is at 64.4 MT and 70 MT for FY21E and FY22E respectively.

Worst over? Petrol, diesel demand reach 89% of normal in May, June