It actually is a down cycle in the oil marketing sector as after furnace oil, retail fuels have also lost the force with which their consumption was growing – the difference between furnace oil and retail fuels is that where FO is deliberately being phased out, the decreased consumption of retail fuels like diesel and petrol is synonymous with slowing economy and infrastructural/transport activity.
Not only has the demand weakened for both diesel and motor spirit (petrol), hurdles like the smuggled products especially Iranian diesel as well cheaper alternate fuels in the wake of rising inflation have also dampened sales of late. And the OMCs have had the added pressure to deal with intensifying competition in the sector that has also played its role in chomping away volumetric sales from key players.
The effects of volumetric deceleration will be visible in the annual corporate sales revenues forFY19 yet to be announced. Similarly, their profitability is highly sensitive to increase in pump prices, nose-diving rupee versus USD, and no revision in OMC margins. And all this against the backdrop of falling black oil sales (FO in particular) is a perfect recipe for a not-so-sassy financial performance for FY19.
Or even for an optimistic FY20 outlook; high diesel prices are likely to persist which will keep the flowgates of grey product open because of the wide discount it is sold at. Existing players have seen there market shares eaten away by new smaller player. Total market share of the four key players PSO, APL, SHELL and HASCOL has receded to 69 percent in FY19 from 75 percent in FY18.
The only silver lining here is that the falling consumption means lower imports of the fuels – depicted by the gap between refinery production and sales of the fuel in the illustration.
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