Shares of Indian oil marketing companies like Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd., and Bharat Petroleum Corporation Ltd. declined on Monday after the benchmark Singapore Gross Refining Margins hit their lowest level since October 2023.
Closing GRM levels on Friday stood at $2.5 per barrel of oil, a 19% drop from the $3.1 per barrel level a month ago.
The Singapore GRMs represent what refiners make from processing each barrel of crude into diesel, gasoline, and other products. Since Singapore is a major refining center, these margins act as a benchmark for the global refining industry.
Intraday, shares of Hindustan Petroleum fell 5.22%. While, Indian Oil and Bharat Petroleum stock were down 2.64% and 4.34%, respectively.
Drop In Gross Refining Margins
The Singapore gross refining margins have dropped 40.5% in the first quarter of financial year 2025. Margins stood at $2.5 per barrel on May 10, compared to the $4.2 per barrel level on April 2.
The average levels for 2024 stands at $6.7 per barrel.
The price trajectory in fiscal 2025 so far stands against brokerage views that the refining segment is the growth driver for Indian oil marketing companies.
Impact On Indian OMCs
A drop in Singapore GRMs indicates a shrinking profit margin for oil refiners. This can happen due to two main reasons: increase in oil prices or lower demand.
The contraction in Singapore GRMs negatively impacts major Indian oil companies that operate refineries.
With the oil marketing companies not practicing dynamic fuel pricing system (change in pump fuel rates everyday), the lower gross refining margins put more pressure on profitability.
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