With the international prices of petrol and diesel cooling due to economic slowdown concerns, marketing losses for the three Indian oil companies will ease, said Moody's Investors Service.
In a report, Moody's said the marketing losses for Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) will go down.
"Still, overall earnings for fiscal 2023 ending on 31 March 2023 will be weak because of marketing losses in the first half, when net realised prices did not increase as much as international prices because of fuel price caps," it said.
The rupee's depreciation against the US dollar further hit profits as oil prices and a large portion of refiners' borrowings are in dollars, Moody's said.
A decline in crude oil prices from levels earlier in the current fiscal year will lower feedstock costs and improve profitability in the next few months.
The three companies also benefit from the continued use of Russian crude oil, which is trading at a discount to Brent crude. Nonetheless, oil prices are likely to remain volatile over the next 12 months, Moody's said.
An escalation of the Ukraine conflict or an increase in oil demand from China following its opening would push up prices and constrain the refiners' profits.
Moody's also said, the credit metrics of the three companies will improve as earnings rise and working capital requirements ease.
On the other hand, lack of clarity on fuel pricing in India is credit negative for the refining and marketing sector. If the companies continue to incur losses from fuel price controls and are not compensated by the government in a timely and predictable fashion, their fundamental credit quality will weaken, Moody's added.
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