Oil marketing companies (OMCs) may have to cut petrol and diesel prices by Rs 4-5 per liter from August as crucial state elections are likely to be held in November-December. While OMC's FY24 P/B estimates appear reasonable, there is significant uncertainty surrounding fuel market outcomes as strong OPEC pricing power leads to high crude prices in the 9-12 months leading up to the election, JM Financial Institutional Securities said. Thus, optimism about OMCs depends on crude oil prices remaining below USD 80 per barrel and the government fully compensating for the FY23 fuel underutilization. According to the report, OMC's estimates seem reasonable, but a sharp rise in oil prices during the election could threaten OMC's market revenues. However, the market segment revenues of OMC could be at risk if the price of Brent oil jumps above the OMC crude breakeven price of 85 USD per barrel, or if a fall in fuel prices is followed by an increase in crude oil prices. a fall in fuel prices may be unlikely. during the election period. There is an additional risk to crude oil prices as we believe OPEC will continue to support Brent crude at USD75-USD 80 per barrel, which is the fiscal breakeven price for Saudi crude due to their strong pricing power, the report said.

OMCs may be asked to reduce petrol/diesel prices by INR 4-5 per liter from August as crucial state elections are likely to be held between November and December. Media reports suggest that OPC may be under pressure to lower petrol/diesel prices as OPC has largely improved its balance sheet and is likely to report a large profit in 1Q24; However, the reports did not mention the likely time and size of possible cuts because it depends on the level of stabilization in crude oil prices and INR / USD exchange rates. "Company calculations show that OMCs may lower petrol/diesel prices by INR 4-5 per liter from August 23, based on the current distribution of oil prices and commodities, considering the next 12 months (Nov- dec) election series. 23," the report said.

The latest IEA report paints an entirely bleak picture for refineries. Global refinery capacity is likely to rise by 8 million bopd by 2028 due to increased production capacity, slowing oil demand from the transportation sector and competition from crude products, Motilal Oswal Financial Services said. China will play a key role in rebalancing the global refined product market, with 44% of future capacity over the next six years and 40% of global spare capacity in CY28 concentrated in China. Excess supply could lead to a glut of refined products on the world market, which could structurally weaken refining margins in the mid-10s. The study said IOCL will suffer the most from the fall in GRMs as it has the highest refining leverage among OMCs.