Oil Your Portfolio With These Oil Marketing Companies

Remember those days when crude used to be sold at US $ 100/barrel and investing your hard-earned money in the stocks of Oil Marketing Companies (OMCs) had not been a great option as the OMCs’ balance-sheets were under pressure! Exactly two years since July, 2014 when crude was hovering in the range of US $ 100, global oil scenario has changed like never before benefitting OMCs the most and hitting the crude producing countries to the worst.

At the time of filing this report on August 1, WTI crude is positioned comfortably at a price of US $ 41.42 and OMCs in India have touched their all-time high. In addition to lower crude prices, several initiatives adopted by the government in the Centre including ethanol blending policy, deregulation of subsidies for kerosene, proposal to merge 13 oil PSU firms are going to brighten the fortune-slate of the OMCs, especially the PSUs, Indian Oil Corporation (IOCL), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL). Let us do a quick check on the present while also doing a bit of talks on what does the future hold for the OMCs in India, including private sector major, Reliance Industries (RIL).

ALL TIME HIGH

Relation between crude oil prices globally and balance-sheets of the OMCs are very close - in fact, numbers coming from the OMCs are mostly dependent on the crude prices. Lower crude price leads to rise of Gross Refinery Margin (GRM) of the OMCs. Crash of crude prices in global markets help the oil retailers to earn more profitability.

The Brent crude prices averaged at its lowest level since 2004, significantly reduced profits and cash flow for energy companies. Though production increased from year-ago levels, but growth fell as these companies reduced capital expenditure. Many companies were just able to balance their capital expenditure with cash from operations.

From the above graph, we can figure out that major oil companies have performed well on the capital markets keeping an antagonistic trend with the crude prices. This theme is more applicable on the three major oil PSUs than RIL as RIL’s balance-sheets depend on various other factors as well, it being a well-diversified company though with a focus on oil refining.
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IMPROVING FINANCIALS

The oil and gas sector is among the six key sectors in India.It plays a vital role in influencing decision-making for all the other important sections of the economy. This particular sector totally depends on import and so the sector’s growth and the companies’ growth totally depend on international crude price.

Around 70 per cent import of India constitutes crude oil. In the chart below we illustrate how crude oil prices effect the major companies’ financials.

Key major players of this sector are HPCL, BPCL, IOCL,RIL. We have analysed their last five years’ key financials in below.

HPCL

HPCL is a major oil marketing state run company. Currently its shares are traded at all-time high at Rs 1260. The company’s business is refining crude oil and oil retailing. Their capacity utilisation of last fiscal was 14.8 Million Metric Tonnes Per Annum (MMTPA) in refining, and 34.2 MMTPA in marketing. In marketing segment, the company operates various business, such as retail LPG, district sales, aviation, operations and distributions, natural gas and renewable.

Revenue from operation of the company stood at Rs 187078 crore in FY16, down by 13.62 per cent as compared to the previous fiscal year, a growth by 20 basis points CAGR from last five years. Also the company has improved its margin ratios and its PBITOE margin stood at 3.76 per cent in FY16, which was 1.01 per cent on FY15. Also PAT margin of the company improved from last fiscal as currently it stands at 2.63 per cent, which was 0.69 per cent on the previous year.

BPCL

Bharat Petroleum Corporation has its business interests in marketing, exploring and refining of crude. The company operates four refineries. Its products include LPG, diesel, petrol, metal cutting gas, kerosene, aviation fuel, bitumen, naphtha, auto lubes, lubricants, grease and oil. The company's more than 96 per cent revenue comes from petroleum products, whereas 3.12 per cent revenue comes from subsidy and 4.48 per cent comes from oil, rest 0.07 per cent comes from other sources.

Revenue from the operation of the company declined by 22.23 per cent to Rs 188651 crore in FY16 as compared to previous fiscal year. The company’s EBITDA rose by 7.59 per cent to Rs 14414 crore in FY16 on yearly basis. Its net profit also increased by 66.54 per cent to Rs 7982 crore in FY16 as compared to previous financial year. BPCL’s revenue remained down by 2.32 per cent CAGR in FY16 over the past five years. The company’s EBITDA and net profit boosted by CAGR 24.53 per cent and CAGR 59.19 per cent respectively.

IOCL

IOCL’s revenue decreased by 20.82 per cent to Rs 355927 crore in FY16 as compared to the previous fiscal year. The company’s EBITDA increased by more than double to Rs 23197 crore in FY16 on a yearly basis. Its net profit also doubled to Rs 11219 crore in FY16 as compared to the previous financial year. During previous five financial years, IOCL’s revenue declined by CAGR 2.74 per cent. The company’s EBITDA and net profit increased by CAGR 3.3 per cent and CAGR 21.56 per cent from FY12 to FY16.

RIL

RIL’s top line has fallen by 15.17 per cent to Rs 64990 core in Q1FY17 on a yearly basis. whereas the EBITDA has grown by 12.69 per cent to Rs 11223 in Q1FY17 as compared to same period in the previous fiscal year. Its bottom line has risen by 19.9 per cent to Rs 7464 crore in Q1FY17 on a yearly basis. RIL has witnessed Gross Refining Margin (GRM) of USD 11.5 per barrel in Q1FY17 against 10.8 per barrel in Q4FY16. Meanwhile its GRM stands at USD 10.4 per barrel in Q1FY16.

On segmental revenue front, RIL has earned 31.88 per cent from petrochemicals, 87.04 per cent from refining, 2.06 per cent from oil and gas, 10.26 per cent from organised retail and 3.72 per cent from others during Q1FY17. The company earned majority of the revenue from refining segment i.e. 84.96 per cent amounting to Rs 234946 crore as of FY16.
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Factors which affected crude oil prices

Top OPEC exporter, Saudi Arabia has kept output close to a record high as it meets seasonally higher domestic demand. Saudi Arabia also has remained focused on maintaining its market share rather than trimming supply to boost prices.

Increase in OPEC production has added to downward pressure on prices. Oil has crashed from a 2016 high near USD 53 a barrel in June to USD 42 as of July 29, 2016 due to concern about weaker demand.

Meanwhile, US commercial crude oil inventories dropped by about 2.34 million barrels for the week ending July 15 as compared to the previous week. Inventories stood at 519.46 million barrels for the week ending July 15, according to data released by the EIA (U.S. Energy Information Administration). 

PRODUCTS 

The petrol and diesel prices have remained in quite range despite free fall of crude prices in the global markets. The range bound petrol and diesel prices gave OMCs chance to increase their profitability in past five years.

GRMs: Gross Refining Margins (GRMs) of public-sector oil marketing companies may recover on account of strong demand and higher marketing margins.Meanwhile, GRMs of OMCs remained lower in Q1F17 as compared to previous fiscal year.

GRM generally refers to the difference between the total value of petroleum products coming out of an oil refinery and the cost of crude oil.

It has been estimated that GRMs of the OMCs to be at USD 4.3-5.5 a barrel, which is 11-28 per cent lower than their 2015-16 estimates.There are assumptions that Q1FY17 GRM of the OMCs are going to be conservative and can be boosted by inventory gain of USD 1.1 per barrel.
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Government policies

I.) Ethanol Blended Fuel: During December 2014, the Union Cabinet had approved usage of non-food feed stocks besides molasses as source of ethanol to be used for blending in fuel. 

Now the new government in the Centre is expected to come up with a new policy on non-conventional resources as it plans to take up ethanol blending in petrol to 22.5 per cent and in diesel to 15 per cent. The second generation ethanol production from bamboo, rice straw, wheat straw, cotton straw will help to meet demand for mixture of ethanol with petroleum products.Government is ready to purchase the entire quantity of ethanol produced by the industry. The ethanol blended fuel will be economically viable and environment friendly. Ethanol policy has been modified to smoothen supply chain of ethanol to OMCs. The boost to ethanol production could reduce India's huge crude oil imports bill, which is pegged at Rs 7 lakh crore per annum. 

II.) Deregulation of Kerosene: The government has flagged the way to trim fuel subsidy. On July 1, it raised the price of kerosene by 25 paise a litre, the first time in five years. Meanwhile, oil companies have received the green signal to increase Public Distribution System (PDS) kerosene price by 25 paise every month till April 2017. The monthly kerosene price increase is similar to the path taken by the government to decontrol diesel price.

Kerosene and LPG are sold well below their cost of production. Currently, under-recoveries on kerosene and LPG are Rs 13.1 a litre and Rs 116 per cylinder, respectively. The government gives a subsidy of Rs 12 per litre on kerosene while the balance is borne by upstream petroleum companies.

The incremental prices of kerosene would bring its prices closer to the market-determined price. Meanwhile, kerosene accounted for 42 per cent of the total petroleum subsidy in FY16.

The proposed price hike would lower the government's subsidy burden by Rs 1000 crore for current financial year. Further, deregulation of fuel prices in next fiscal year to ease fiscal deficit. This is expected to ensure quicker payments for the downstream companies and better working capital efficiency. 

III.) Proposed merger of oil PSUs: The government is planning to merge 13 state oil firms to create a giant corporation. The oil ministry has begun evaluating the prospects of creating an oil conglomerate by merging 13 state oil companies, which will have a bigger market value than the Russian state oil giant Rosneft and India's Reliance Industries.

Meanwhile, merger of these firms may involve many legal and organisational challenges.There would be Competition Commission of India (CCI) hurdle for proposed merger. Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation among themselves control more than 90 per cent of domestic market for petroleum products. Post-merger, it would create monopoly in the sector itself.
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RECOMMENDATIONS

After crash of crude prices, entire globe may witness fall of crude oil prices for near term. We are expecting crude oil prices may hover around USD 50 during medium to long term period. Lower crude price is favourable for the OMCs. We have come up with the below recommendations for our reader-investors.

Castrol India

BSE Code: 500870

FV: 5

CMP: 446

Castrol India is engaged in the business of manufacturing and marketing of automotive, non-automotive lubricants and related services. The company operates in two segments viz. automotive and non-automotive. It is also a supplier of technologically metal working fluids and high performance lubricants. Castrol India has three manufacturing plants and 23 warehouses. The company reaches its consumers through a distribution network of over 270 distributors, servicing approximately 91000 retail outlets.

On the financial front, Castrol India’s revenue increased by 6 per cent to Rs 1827 crore in H1CY16 on yearly basis. On segmental revenue front, the company earned 88.88 per cent from automotive products and remaining 11.12 per cent from non-automotive during H1CY16. Its EBITDA too rose by 71.56 per cent to Rs 573 in H1CY16 as compared to same period in previous year. Castrol India’s EBITDA margin expanded considerably to 31.36 per cent in H1CY16 against 19.28 per cent in H1CY15. The company’s net profit also increased by 53.38 per cent to Rs 247 crore in H1CY16 as compared to same period in previous financial year.Its net profit margin rose by 247 basis points to 20.77 per cent in H1CY16 on a yearly basis.

During the upcoming second half of the year, the company’s management feels its lubricant market will recover driven by increased sales and freight movement. At the same time there might be the volatility in input costs and exchange rate to continue. Hence, we recommend our readers to BUY this stock.

Tide Water Oil (India)

BSE Code: 590005

FV: 5

CMP: 5624.7

Tide Water Oil (India) manufactures and sells Veedol (Lubricating Oil). The company's products are marketed under the Veedol brand name. Its products include automotive lubricants, industrial lubricants and genuine oils.

On financial front, revenue of the Tide Water Oil (India) increased by 1.85 per cent to Rs 1056 crore in FY16 as compared to previous financial year. The company’s EBITDA too rose by 69.55 per cent to Rs 136 crore in FY16 on yearly basis. Its EBITDA margin expanded by 517 basis points to 12.88 per cent in FY16 as compared to previous fiscal year. The net profit of Tide Water Oil (India)declined by 42.98 per cent to Rs 90.41 crore in FY16 on yearly basis due to exceptional gain of Rs 150.33 crore during FY15.

The top line of Tide Water Oil (India) increased by CAGR of 5.68 per cent during FY12 to FY16. The company’s EBITDA too rose by CAGR of 9.94 per cent during last five financial years. Its bottom line also boosted by CAGR of 9.31 per cent in past five fiscal years.

On valuation front, Tide Water Oil (India) is trading at TTM PE multiple of 21.68x times as compared to industry PE multiple of 31.12x times. The company’s ROE and ROCE Stood at 36.04 per cent and 51.1 per cent as of FY16. Hence, we recommend our readers to BUY this stock.
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Deb Mukherjee- CEO, Wisdom Capital

Technically, since 2014 crude oil is primarily in downtrend.  This has reverse affect on oil marketing companies and most of the shares are currently trading at their yearly or lifetime high.  Normally I would love to recommend stocks even as those are making new highs and one must grab such stocks for an excellent earning in short to long term.  But as crude oil manipulates the performance of oil marketing stocks, a cautious approach is required to be adhered to.  I would rather suggest one must book profit partially at maximum 50% of their holdings on current level.  For rest of the shares one must follow strict stop loss of 50 DMA, 100DMA or 200 DMA subjected at short, mid or long term investment respectively.  Reason behind the cautious approach, let me explain in brief as follows: since early 2014, crude oil is primarily in a downtrend, in mid-term it is in uptrend and short term again it is in downtrend. In the month of Feb 2016 it has achieved its downward target of 18000 which is a double bottom also. A strong reversal was expected here, which did happen for the subsequent 4 months, making high of 3440. Presently short term counter trend is in progress and current market price is 2782. 

All that you need to know about crude

Sumit Pokharna, Deputy Vice President (Research), Kotak Securities and K Ravichandran, Senior Vice President, ICRA respond to half-a-dozen questions raised by Arshad Hippagri on various issues related to crude prices and its impact on Indian OMCs.

Brent crude has witnessed a significant downfall during the last week of July. What has triggered such a downfall in the oil prices yet again?

SUMIT: Crude oil prices have almost doubled from its low, resulting in higher rig utilisation, higher production but crude oil demand has not increased meaningfully. The recent decline in crude oil prices is mainly on account of lower crude oil demand, higher crude oil supply, and unwinding of net non-commercial long positions in crude oil. 

RAVICHANDRAN: The recent spike in oil prices, which resulted in the Brent breaching the $50/bbl-mark, was led by one off events leading to supply disruptions such as wildfires in Alberta’s oilsands region, attack by militants on oil infrastructure in Nigeria, workers’ strike in Kuwait, and disruptions in Iraq and Libya.  At their peak, supply disruptions removed up to 2.50 million barrels per day (mbd) during May and June, which turned the market scenario to a marginal deficit one from a surplus position, prevailing till then. With the gradual improvement in supply since then with the effects of one-off events waning, oil prices have started sliding to below $45/bbl.

Indian Oil Marketing Companies (OMCs) have benefited from declining oil prices and during the month of July, they all have gained heavily on the bourses. Do you feel this phenomenon is short-lived?

SUMIT: In the current environment of lower crude oil prices, subsidy rationalisation, retail fuel price de-regulation and expected increase in GDP resulting in higher fuel demand. OMCs are the biggest beneficiaries and are long term structural investment play, we opine.
We expect OMCs’ earnings to grow due to lower fuel and loss (F&L), lower under-recoveries, reduction in interest cost, rising domestic fuel demand and likely increase in marketing margins. With the improvement in (1) earnings quality/predictability, (2) increase in profitability leading to higher RoE’s, (3) better cash cycle and (4) reducing debt levels, we expect OMCs to remain in focus. 

RAVICHANDRAN: While forecasting oil prices is a difficult job as several variables impact the pricing, by and large oil prices should remain range bound between $40/bbl-$60/bbl in the near term, as the oil markets are beginning to rebalance. With the continuing slide in the US oil production and recovery in demand mostly in Asia, the surplus in the market should steadily decline in the near to medium term, which should see a rise in the prices. Moreover, global E&P companies have scaled down their capex by more than 50% since their peak in 2014, which should lead to the slowing down of the reserves addition. Further, an upside risk to the prices is likely if there are supply disruptions in OPEC countries, if the US supplies decline at a more than anticipated rate, and in case of a swift demand recovery. Despite these risks, even at $60/bbl, OMCs should continue to report robust profitability from strong refining margins, expanding marketing margin on auto fuels, robust product demand growth, and diversification benefits from petrochemicals, gas marketing and E&P.

The crude sector across globe is in a serious crisis as investors are not ready to invest in crude oil projects at this time. What could be the prospective solution to this? Do you think OPEC should have anticipated it and played an advanced role before the crisis approached?

SUMIT: Prospective solution for lower crude oil prices is lower oil prices only. We believe upstream industry is in a consolidation mode and will come out from the pains. We do expect some profit booking in crude oil prices but remain bullish on crude oil in the long term. 

RAVICHANDRAN: The past couple of years have clearly demonstrated that no single country or group of exporters such as OPEC, can exercise undue influence on the price formation. Hence all E&P companies are price takers when it comes to selling their crude oil and natural gas, with volatility in prices becoming a permanent feature of the industry. Successful E&P companies manage these risks by maintaining low debt in relation to reserves, allocating efficient capital for projects, hedging prices, controlling costs, and pursuing M&A opportunities. 

About 40 per cent of the world's oil revenue comes from OPEC nations, last time OPEC meet was on June 2 in Vienna and it maintained the status quo, do you feel OPEC still lacks clarity in its action?

SUMIT: Lower crude oil prices have impacted OPEC deeply. We will wait for OPEC meet outcome.

RAVICHANDRAN: There is lack of consensus among the OPEC countries on maintaining production discipline. Their task is made more difficult by the fact that there is perfect competition in oil markets, with the US and Russia emerging as formidable producers. Even if OPEC were to curtail production in a bid to boost the oil price level, shale oil producers in the US are bound to come back to the market with the costs of exploring, developing and producing oil/gas continuously sliding. Thus, if oil prices were to recover and sustain beyond $60/bbl even for a year, one can expect rig count and production in US to stage a smart recovery, which will again put pressure on the prices. Unless oil demand catches up with the current and potential supplies, there is very little that OPEC producers can do.

Brent crude has risen to almost $50 a barrel, from the below $30 lows reached earlier this year, the international benchmark is struggling to sustainably break at that level. What are you views on this?

SUMIT: We do expect some profit booking in crude oil prices but remain bullish on crude oil in the long term.

RAVICHANDRAN: As mentioned earlier, the markets today are over supplied and unless the demand catches up with current and potential supplies, which is unlikely in the medium term with the worries about demand in Europe, Japan and China, prices could be range bound in the $40/bbl-$60/bbl band. Strength in the US$ index against a basket of currencies, will also lead to softer price trends as the import costs of crude oil become pricey in local currency terms for the importers. Any material geopolitical tensions and supply disruptions due to militancy could be the upside risks to the prices.

How do you see oil and gas exploration companies to behave following the crude crisis? 

SUMIT: Companies have already cut down capex plans, continues cost cutting measures are in process such as re-negotiation in rig rentals, layoffs, etc.We believe upstream industry is in consolidation mode and will come out from the pains.Cash rich upstream companies are looking for acquisitions at an attractive price.

RAVICHANDRAN: State-owned oil companies have by and large stuck to their E&P capex, as they have a mandate to bolster the energy security besides other social obligations. However, large integrated oil companies such as Exxon Mobil, Shell and Chevron and smaller independent E&P companies have slashed their capex by as much as 50% compared to their recent peak, preferring to conserve cash. They have largely abandoned long gestation and capital intensive offshore projects for the time being. In order to control costs, many of them have renegotiated contracts with rig owners and oil field services providers, besides downsizing excess manpower. They are also resorting to optimisation of project scope, so that capex is low per unit of production. Some of the state-owned companies have also resorted to M&A transactions through bilateral government deals or direct negotiations, as there are several distressed assets in the market for sale, albeit valuation differences are delaying closure of these deals. Maintaining low financial leverage and having adequate liquidity will be the key to tide over a difficult period for the private oil companies.
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Pradeep Gupta, Executive Director of Jagson International Limited in an interaction with Abhijeet Gosavi talks about future of crude pricing and its impact on Indian OMCs on a medium to long-term. Excerts:

1. Central government has allowed 25 paise monthly hike in kerosene prices till April, 2017. How will it impact theOMCs?

According to the Petroleum Planning and Analysis Cell, the cost to produce a litre of kerosene is Rs.26.52, while it is sold at Rs 15.28. It means kerosene, the poor man's fuel, is sold below its cost of production since the last many years.Currently, under-recovery on kerosene is Rs.13.1 a litre. The government offers a subsidy of Rs.12 per litre on kerosene while the balance is borne by upstream petroleum companies such as Oil India and ONGC. In 2015-16, kerosene accounted for 42% of the total petroleum subsidy. Indian Oil Corporation Ltd (IOC), with more than 67% market share, will benefit the most amongst the OMCs.

Please see the below pointers regarding the impact of kerosene price hike-

·       Gives better working capital efficiency

·       Necessary to match the market determined rate

·       Downstream companies can expect quicker payments

·       Makes divestment of oil marketing companies easier

·       Will benefit upstream companies such as ONGC and Oil India

·       Will reduce the consumption of kerosene by providing more LPG in rural areas

·       Will reduce the government's subsidy burden by around Rs1,000 crore this year

2. How do you see crude going from here?

India was the 4th largest consumer of the crude oil and petroleum products after US, China and Japan in 2015. The gap between India's oil demand and supply is widening, as demand in 2015 reached nearly about 4.1 million barrels per day compared to around 1 million b/d of total domestic liquids production.

The oil-price rally that began in February is over. Prices rose from $26 per barrel to $51 by early June and are now below $46. If they fall below $40, the next likely support level is at $36 per barrel.

3. How do you see the journey of the Indian OMCs from here?

We expect the demand to accelerate in the 2016 through 2017 timeframe, as India's transportation and industrial sectors continue to expand under economic development. Also oil prices have declined since mid-2014; and recent governmental policy initiatives to increase highway and road infrastructure to promote Indian manufacturing will give a boost to the industry.

4. Can you throw some light on Brexit impact on crude and overall industry in medium to long term?

As the world economy was gripped in the fear of Brexit, the demand for crude oil started dipping and the market sunk to a three-week low since early this week. The news of Britain’s decision to leave the EU was accompanied with the vexation of a possible slowdown in the energy sector. The immediate consequences were that the market took a nosedive losing around 8%, and the attempt to recover was checkmated.

As a result of the fall in valuation of Pound the demand for dollar grew significantly in the past few days and as a result the commodities trading in dollar became strong, and as so the price of crude oil also increased to a certain extent. As a result, oil became less attractive for foreign investors. The outlook for growth in both the EU and Britain became feeble and debatable.

Potential oil workers’ strike in Norway and crisis in Venezuela’s energy sector added fuel to the looming fire. The significant drawdown in U.S stockpiles also contributed to the current scenario by accelerating the process. In U.S till June 24, 2016 the domestic fuel supplies fell by 4.1 barrels as reported by The US Energy Information Administration.

It will be too early to comment, although it has created a healthy debate. The fundamentals of the crude market still remain the same. The UK being among the top 5 economies globally, the Brexit won’t be affecting the crude/oil supply-demand matrix significantly even if withdrawal from EU turns out to be hugely negative for the economic growth.

Despite the recent series of events, the debate is still on and far from over. Brexit is going to have a much more significant effect on the financial and banking sector rather than the crude oil sector.

5. Government will soon come up with a new policy on non-conventional resources as it plans to take up ethanol blending in petrol to 22.5 per cent and in diesel to 15 per cent. How optimistic is your company about this development?

The government is planning to take the blending limit of ethanol in petrol to 22.5 per cent and diesel to 15 per cent, as also second generation ethanol production from bamboo, rice straw, wheat straw, cotton straw etc., to power vehicles. 

The Union Minister, Nitin Gadkari said recently that he saw such successful industries in Italy and as per rough estimates 40,000 litres of second generation ethanol could be produced here easily; and also added that boost to ethanol production could cut India's huge crude oil imports bill, which is pegged at Rs 7 lakh crore per annum. 

According to me, ethanol could be a game changer as it is economically viable and environment-friendly.  To augment supplies of ethanol to oil marketing companies (OMCs) under EBP, the policy for procurement of ethanol has been modified to smoothen the entire ethanol supply chain to provide remunerative price of ethanol.

6. Kerosene accounted for 42 per cent of the total petroleum subsidy in FY16. Going forward, how will it help the sector, as government will slowly reduce subsidy burden?

As I mentioned in the first question, “In 2015-16, kerosene accounted for 42% of the total petroleum subsidy. Indian Oil Corporation Ltd (IOC), with more than 67% market share, will benefit the most amongst the OMCs.”

Currently, every $1 decrease in crude prices pulls down import bill by Rs 6,500 crore and the government’s subsidy burden by Rs 900 crore.  Currently, every Rs 1 increase in the exchange rate of dollar increases oil import bill by Rs 7,455 crore, according to Petroleum Planning and Analysis Cell (PPAC), an arm of the Oil Ministry.

According to me, reducing subsidy burden can be a problem for OMCs, but they can manage it and this will directly put pressure on import duty. Apart from all this, it will create a short fall in oil sector which will trigger the demand later on. If the demand increases, the goverment can subsidise it a little to stabilise the market.

7. Your company is also in the retailing of finished gasoline products. How do you see things move from here for companies like Jagson in the wake of crude scenario?

Our fuel retailing business under the aegis of Jagson International Ltd., is an established petroleum retailing company.The company has constructed ultra-modern petrol pumps which are running for the past several years, for selling various petroleum products like MS, HSD, lubricants, etc.

It’s not about us only, the market demand is very less and Brexit has created more impact on it. Oil prices have slipped in the last month and a half, with Brent crude oil, the international benchmark dropping from more than $52 per barrel in early June to less than $45 now - a low seen in a span of less than two months.