Weak Demand for Indian Downstream Firms; Low Prices Hurt Upstream Profit

  • Oct 17, 2020
  • Investing

Fitch Ratings-Mumbai/Singapore-15 October 2020: Fitch Ratings expects Indian oil marketing companies’ (OMC) marketing and refining volume to fall by more than 15% in the financial year ending March 2021 (FY21) before a gradual recovery in FY22.

Pent-up demand and the upcoming festival season may support fuel sales in 3QFY21, but a sustainable recovery would be subject to risks from the continuing spread of the coronavirus hindering mobility and economic activity.

Fitch expects gross refining margins to remain under pressure from weak product demand and crack spreads in the near term until the global economy recovers significantly from the coronavirus crisis.

We expect the FY21 marketing margins of OMCs to widen from FY20, driven by exceptionally high margins in 1QFY21 when the fall in crude oil prices was not fully passed on to consumers and prices rose to partly cover investments to comply with new emission standards.

The FY21 profitability of upstream oil and gas companies is likely to weaken on lower oil and gas prices and muted production growth, mitigated by a fall in oil price-linked statutory levies.