- Fluctuations in crude oil prices
- Impact on cash flow of OMC and GAIL
- Rising prices threaten Indian oil companies
Hormuz Strait Crisis: If tensions with Iran persist for a long time. If traffic through the Strait of Hormuz is disrupted or crude oil prices remain high, the cash flow of India’s state-owned oil marketing companies and gas company GAIL India could increase, ratings agency Fitch said. According to the report, rating agency Fitch said the financial indicators of these companies may weaken in the short term, but the government support does not threaten their ratings.
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Bharat Petroleum Corporation Limited (BPCL) has the strongest balance sheet among oil marketing companies (OMCs) rated by Fitch. Prolonged supply disruptions or rising crude oil prices can be handled well. According to Fitch, it is followed by Indian Oil Corporation (IOC) and Hindustan Petroleum Corporation Limited (HPCL). The rating agency said the government will try to manage the financial situation of OMCs keeping in mind inflation control and fiscal balance.
Crude oil prices are fluctuating sharply. According to the report, India imports almost half of its natural gas requirements. About 60 percent of imported LNG comes from West Asia. Therefore, any supply disruption may affect GAIL India’s gas transmission and marketing business.
According to Fitch, if LNG supplies from West Asia are disrupted for a quarter, GAIL’s debt-to-income ratio could rise to around 2.5 times from the current 1.8 times in the next financial year.
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Companies can use their balance sheets to manage short-term fluctuations, the rating agency said. But, prolonged pressures can weaken cash flow and credit conditions. The impact on private refinery operators like Reliance Industries could be mixed. Rising crude oil prices may initially boost their inventories and refining margins, but supply disruptions may increase the risk of crude oil shortages and refinery operational cutouts.
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