Inventory Losses and Declining Fuel Prices Dent Indian Oil's Quarterly Profits
One of India's largest oil refining and fuel marketing companies, Indian Oil Corporation (IOC), saw its quarterly profits decline significantly due to inventory losses and lower fuel prices. According to the financial results announced on Tuesday, IOC's net profit for the January-March quarter fell by 52% compared to the same period last year.
While India remains highly dependent on oil imports to meet its energy demands, IOC and its subsidiary Chennai Petroleum controls over a third of the country's oil refining capacity. In recent months, disruptions to global crude supply and fluctuating prices have eaten into the margins of domestic refiners. IOC incurred inventory losses as the cost of crude it had purchased rose substantially by the time it processed and sold the refined products.
Another factor affecting profits was the relatively stable petrol and diesel prices in India in spite of surging global energy costs. To shield consumers ahead of important elections, oil marketing firms decided to absorb part of the rising costs and froze fuel rates for a record period. However, this meant IOC had to sell fuels in the domestic market at prices below international parity levels, leading to financial losses.
Despite recording higher annual revenues, IOC's quarterly net profit declined to Rs. 48.38 billion compared to Rs. 101.35 billion in the same quarter last fiscal. With uncertainty remaining over the trajectory of oil prices, refining margins are expected to come under more pressure in the coming months unless retail fuel rates are appropriately calibrated.
