State-run oil companies including Indian Oil, BPCL, HPCL are likely to witness a steep decrease in their earnings in January-March quarter as country’s fuel consumption reportedly shrank by 18 per cent in the last month, the biggest decline in more than a decade, as a nationwide lockdown halted economic activity and travel.

India’s petroleum product consumption fell 17.79 per cent to 16.08 million tonnes in March as diesel, petrol and aviation turbine fuel (ATF) demand fell, according to official data released on Thursday.

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As most trucks went off-road and railways stopped plying trains, diesel saw demand contract by 24.23 per cent to 5.65 million tonnes. This is the biggest fall in diesel consumption the country has recorded yet. Similarly, Petrol sales dropped 16.37 per cent to 2.15 million tonnes.

According to a research report, conducted by ICICI Direct, the unusually high gross refining margins reported by oil marketing companies (OMCs) have already seen a fall in the Q4 period and coupled with inventory losses that the companies would report during the period, would lead to a further drop in GRMs and consequently impact their revenues.

Companies make inventory losses in a falling market as the cost of the inventory in the form of crude and products is higher than the prevailing prices.

The projection is that BPCL may report a net loss of Rs 556.2 crore in Q4, while Indian Oil may report significantly higher losses at Rs 2376.3 crore. ICICI Direct has projected loss to the tune of Rs 628.4 crore for HPCL in January-March quarter of FY20.

“For Indian refiners, spreads of gas oil, gasoline and jet fuel are more important and have declined in the current quarter. The spread for gas oil declined by $1.9/bbl (per barrel) from $12.8/bbl to $10.9/bbl, which will negatively impact GRMs QoQ (quarter on quarter),” the report said.

The present situation has also resulted in declining sales in the City gas distribution segment. City gas distribution (CGD) companies’ sales volumes are expected to take a hit during the quarter due to reduced sales on account of nationwide lockdown in March. These restrictions will affect CNG & industrial/commercial PNG sales. But domestic PNG sales volume will continue to report steady growth.

A decline in gas prices will lead to higher gross margins YoY for all CGD companies. For large gas utility companies also, volumes are expected to fall due to lower demand mainly in March.