As a shareholder, one would be unhappy that oil marketing companies are not increasing prices, but as a consumer very happy that one does not have to pay more for fuel. Do you think that OMCs should have raised prices and considering where crude prices are?
As you said all the consumers will be happy with lower prices while the shareholder will always like that the prices to be high.
The fact remains that the crude prices have been very volatile in recent times. In November, it was $81, in December it was $69, in January $82 and now in February it is again $93. So the swing had not been a dollar or two, it has been in the range of $5, $3 per day and a month on month the change had been to the extent of $10. Now everyday a hike of Rs 4, Rs 5 and a drop etc, is one possibility or we try to moderate it so that the things in market are not that volatile because all said and done, in India it is a sensitive commodity.
Also, as a country, we are yet to realise that it is an international commodity and will get impacted by international events. But within the parameters in which we operate, our efforts are to align it to the international markets in the long run. At the same time, we will try to moderate the day-to-day volatility to the extent possible.
The only problem this time is that a series of international events are happening. In a normal course, this will normally be even up in a shorter duration of time but currently, there was an overall narration because of which the supplies were constrained. Though OPEC has increased output, in reality they are still short of around 800,000 barrels from what is their authorised quota. The US has not been able to ramp up the capacity to the extent it is required. There is a winter wave in North America. There were some tensions in the Middle East. There were some disturbances in African countries that happened in a series, one after the other. Since the inventories are at lower levels than what it should have been, the impact of that is immediately seen in the prices.
If you see today the paper trading to physical trading volume ratio is substantially high. And the traders will have a tendency to push it up when the prices are going up and push it down when the prices are going down and that is all we are seeing. Now there is simmering tension between Iran and the US as well as between Ukraine and Moscow. All that affects oil.
I understand that what is happening in the crude market is to some extent has geopolitical reasons, but the fact remains that OMCs have not increased prices post November while internationally, they have gone up more than $20. Does that go with the spirit of oil deregulation? You have said before that in India, oil prices are calculated on the basis of a 15-day moving average. Since you are not increasing prices, is it going to hurt your fuel retail margins?
We increase and decrease the prices on a 15-day cycle. That is true in a normal scenario and that is what we have been doing also. The prices are too volatile right now and that is one of the reasons. Over a period, it averages out. Now whether the average base will be higher than the current base is what we need to see. For a shareholder, if it is a day-to-day trader, he may think like this. If it is a long-term investor, then he sees it differently.
Oil marketing companies have been holding back on fuel price hikes since mid November and the Street wants to know when that catch up is going to take place. We do see this trend around state elections. Will that catchup happen post counting day?
It will be slightly speculative on my part to say that but there is no doubt that ultimately we need to align with international prices and if the international prices continue to be high, the domestic prices have to go up.
As the world is getting used to the new normal – which could be a triple digit figure for crude oil – there are various estimates talking about $100 a barrel. Can you share with us what HPCL is doing to hedge against that?
Crude is normally contracted two months ahead of when the crude is normally supplied, that is number one. Second, there are too many narrations which are going across the world. There are some positive narratives that the prices may come down; at the same time, if there are some tensions in Moscow-Ukraine, then it may go up. So there are factors which can push it up and some which can push it down. Each company has got its hedging strategies but ultimately one cannot hedge the full quantum because it has both upside and downward risks. Therefore, while the company will make all efforts to mitigate the risk, there are probably not many choices to keep it aligning to the international prices over a period of time. So all the companies take actions accordingly as do we. There are term contracts, spot contracts but the prices ultimately remain aligned to the international prices.
What is the total capex that the company has slated and how much of the capex is going to go towards businesses other than that of refining and marketing of oil?
We have got around Rs 14,500 crore capex for this year and next year also it will be in the same range. In the past, our major capex was towards the refining petrochemicals and gas business and those projects are slowly getting completed and we are moving our capex profile more towards then newer parts of energy; the renewable and EVs and the non fuel retail as well as some green hydrogen. We expect that around 20-30% of our capex will go to traditional areas of business which will basically continue to be transportation fuel and we expect around 30% of our total capex will move towards chemicals, LNG, non fossil sources of energy, EVs, green renewables etc.