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Current Affairs

Inventory gains helping oil companies

Date: 02 November 2020 Tags: Miscellaneous

Issue

Oil companies have reported strong financial results in the second quarter of this fiscal despite lower operating revenues. The key item driving profits for both companies in the quarter were “inventory gains”. 

 

Background

Inventory profit is the increase in value of an item that has been held in inventory for a period of time.

 

Details

  • In the case of oil marketing companies, inventory gains can be caused by an appreciation in the price of crude classified as refining inventory gains or an appreciation in the price of products such as petrol and diesel classified as marketing inventory gains.

  • Refining inventory gains are a result of an appreciation in the price of crude oil in the company’s inventory. 

  • Companies can also get inventory gains from an upward change in the price of end products including petrol and diesel that they have in stock.

  • The price of petrol and diesel are calculated based on benchmark prices of petrol and diesel in the international market. 

  • The rise in prices of brent crude allowed IOC to register a gain of Rs 5,829 crore on crude alone and a total inventory gain of Rs 7,400 crore including marketing inventory gain on end products such as petrol and diesel when net profit for the quarter was Rs 6,227 crore.

  • BPCL similarly saw a refining inventory gain of Rs 1,303 crore and marketing inventory gain of Rs 1,200 crore in the quarter ending September 30.

  • All three state-owned OMCs registered major inventory losses in the previous financial year due to a sharp fall in the international price of crude oil.