State-run OMCs, including BPCL, had stocked up crude while oil prices were low.

Analysts expect state-run oil marketing company (OMC) Bharat Petroleum Corporation (BPCL) to report high auto fuel margins, gross refining margin (GRM) and inventory gains in Q1FY21, as the company made super normal margins in the first two months of the quarter by keeping retail petrol and diesel prices unchanged amid a global fall in oil prices. This is encouraging for the company, which reported a net loss of Rs 1,361 crore on a standalone basis for the three months ended March 31, against a profit of Rs 3,125 crore in the same period a year ago.

Analysts at ICICI Securities estimates that BPCL’s reported net auto fuel marketing margin will stand at a record level of Rs 5/litre, 2.8 times more than what was reported in Q1FY20. The company’s GRM is estimated to be $4.6/barrel in the quarter, up 63% year-on-year, which is seen to help it make up for 40% annual decline assumed in sales volumes.

BPCL’s poor performance in Q4FY20 have been attributed to inventory losses of Rs 4,900 crore (against inventory gain of Rs 3,560 crore in Q4FY19), stemming from decrease in global oil prices. As retail prices of petroleum products are mapped with international rates, a gradual fall of global oil prices in Q4FY20 meant that by the time BPCL sold its products after processing crude, retail rates had had dropped. For full-year FY20, inventory loss was Rs 36,400 crore versus gain of Rs 10,600 crore in FY19. The company’s average GRM in FY20 was $2.50/barrel, down from $4.58/barrel in FY19.

State-run OMCs, including BPCL, had stocked up crude while oil prices were low. “These low-priced crude reserves should provide a cushion to profitability of Indian refiners whenever demand revives,” analysts at Credit Suisse recently said.

However, muted marketing margins can be a pain point for BPCL going forward as retail prices are not being increased even after rise in global crude rates. ICICI Securities estimates BPCL’s net auto fuel marketing margin to slip into negative territory, at minus Rs 1.28/litre, in the first 15 days of June.