A double whammy for OMCs

Demand for petroleum products is heading south quickly, affecting the entire oil and gas sector. The oil marketing companies have witnessed a steep decline it the volumes sold in March 2020 as lockdowns across the country to control and prevent coronavirus spread continued through most part of the month. (Read: Oil consumption falling off the cliff).

Petroleum product consumption was already slowing down in the country due to change in the preference for power generation fuel from furnace oil to RLNG, while retail fuels like diesel has been losing steam due to slower economic activity in the country and continued and influx of grey product. The pandemic has put an additional and much bigger burden on the OMCs; motor gasoline, which has remained sturdy for so long has also started to show signs of weaknesses.

During March 2020, the overall petroleum products sold by the OMCs registered a sizeable decline of 30 percent year-on-year. Furnace oil volumes were down by 65 percent year-on-year, while high speed diesel and motor gasoline (petrol) depicted contraction of 33 and 16 percent year-on-year respectively. incidence of lockdown in the country has destroyed demand for transportation primarily public transport, which has resulted in decline in the consumption of petrol, while diesel sales have been further pressured by closing down of industrial units. Another highlight of March 2020 is the decline in the sales of jet fuel by around 62 percent year-on-year as flight operations were suspended towards end of the month.

9MFY20 official numbers for the OMC have been dragged down by the March 2020, and the situation is not likely to improve as long as measures like lockdown to contain COVID-19 remain intact. With more weeks into lockdown, April is likely to be even weaker as all industrial activity usually slowdown during Ramadan. Flight operation suspension though partially lifted, will continue adversely affect the consumption of jet fuel, which is already down in the ongoing fiscal year due to the air space ban that was imposed amid the tensions with India.

Besides crashing demand, what is also likely to hit the OMCs is the crashing global crude oil prices. The OMCs will soon be announcing their 9MFY20 financial performance and are expected to incur significant inventory losses due to reduction in the petroleum prices.  April could be worse than March for the OMCs!