Steady growth in demand for petroleum products, along with stable-yet-healthy gross refining margins (GRMs) and increasing oil and gas production, will support the credit profile of oil marketing companies (OMCs) in FY25. India Ratings and Research (Ind-Ra) has maintained a neutral outlook for the oil and gas sector for FY25, according to Bhanu Patni, Associate Director at Ind-Ra.
Patni highlighted that OMCs have managed to keep retail prices relatively stable despite significant fluctuations in crude prices and spreads, ensuring margin stability. This strategy has allowed them to achieve higher margins during certain periods, balancing out lower margins or losses at other times.
Brent crude futures, which peaked above $91 per barrel in early April, eased to around $83 as concerns over a broader Middle East conflict diminished and a softer macroeconomic sentiment weighed on prices, according to the International Energy Agency’s May 2024 oil market report.
Ind-Ra expects India to increase its crude oil refining capacity by 24 million tons per annum (mtpa) over the next two years. Currently, the refining capacity stands at nearly 257 metric tons, or 5.02 million barrels per day (mb/d).
The trend is expected to continue in FY25, Patni added. Stable demand for petroleum products in India has driven refinery capacity expansion. A total of 24 MTPA in refinery capacity is projected to be added by FY26.
Ind-Ra anticipates OMCs’ debt to rise in FY25 to finance planned capacity additions and modernization efforts. However, given the expected margins, Ind-Ra believes the leverage position of OMCs will remain comfortable over FY25.
According to the Centre for High Technology (CHT), a technical arm of the Ministry of Petroleum and Natural Gas (MoPNG), refining capacity is set to increase by 56.6 MTPA by 2028, with 84 percent of this addition coming from brownfield expansions and 9 MTPA from greenfield expansions.
As reported by businessline, between 2014 and 2023, India added a total of 38.9 MTPA of refining capacity, with 39 percent from greenfield and 61 percent from brownfield expansions. From 2010 to 2014, 29.7 MTPA of capacity was added through brownfield expansions.
