Oil marketing companies are expected to show an increase in profits in the fourth quarter compared to the previous quarter.

State-owned oil marketing companies (OMCs), including Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL), posted robust year-on-year growth in consolidated net profits for the quarter ending December. This growth was attributed to healthy marketing margins. However, there was a sequential decline in profit after tax (PAT) for all three companies, primarily due to inventory losses impacting gross refining margins.

Analysts anticipate that OMCs will report substantial year-on-year growth in net profits for the fourth quarter of FY24. Sequentially, profits are also expected to rise, with a likelihood of avoiding further inventory losses in Q4FY24. In the October-December quarter, the combined consolidated net profit of the three OMCs stood at Rs 13,119.11 crore, a significant increase compared to Rs 3,081.55 crore in the same period the previous year. Analysts from ICICI Securities foresee sustained earnings improvement for HPCL over the FY24 to FY26E period, driven by strong margins, strategic investments in downstream business enhancement, diversification aligned with margin improvement, and improving leverage.

Despite recording profits in Q3, OMCs experienced a decline in refining margins. IOCL and BPCL also reported a reduction in revenue from operations, attributed to lower gross refining margins. IOCL's average gross refining margin for April-December fell from $21.08 per barrel to $13.26 per barrel year-on-year. Similarly, BPCL and HPCL reported gross refining margins at $14.72/bbl and $9.84/bbl, respectively, compared to $20.08/bbl and $11.40/bbl the previous year. Refining margins represent the difference between the value of refined products and the cost of crude oil.

Although OMCs assured the security of their oil shipments amid escalating tensions in the Red Sea, there were impacts on freight rates. The unfolding situation over the next few weeks will determine the potential impact on FY25E, according to HPCL's top management.