After reporting losses in excess of Rs 12,000 crore (Rs 120 billion) in the July-September quarter, state-run refiners are likely to make marginal profits in the three months up to December 2008 as crude oil prices have plunged to 22-month lows of below $50 per barrel, five analysts tracking the companies said.

In addition, public sector oil marketing companies like IndianOil Corporation, Bharat Petroleum Corporation [Get Quote] and Hindustan Petroleum Corporation [Get Quote] have started making a profit of 62 paise on every litre of diesel they sell for the first time in three years. The companies are already making a profit of Rs 8.20 for every litre of petrol they sell.

Diesel and petrol constitute nearly 50 per cent of petroleum product sales in India. Thus, these three oil companies now incur loss on only 16 per cent of their sales volume (kerosene and cooking gas).

"The refiners should make marginal profits. Oil prices are down and inventory losses will not be very steep. The numbers will improve significantly if there is no fuel price cut and oil prices remain at these levels for a while longer," said Khandwala Securities [Get Quote] Analyst Vinay Nair.

The share prices of the oil refiners have outperformed the benchmark Sensex on the Bombay Stock Exchange. The Sensex has dropped 28.11 per cent since October 1, the first day of the current quarter, while IndianOil's share price has fallen only 8.76 per cent during the period. Bharat Petroleum has dipped 13.68 per cent and Hindustan Petroleum 9.08 per cent.

However, for the full year, the three companies together are projected to lose around Rs 1,10,200 crore (Rs 1102 billion) because of the high crude oil prices between April and September this year.

When oil prices were at their peak in July, the projected under-realisation on fuel sales was Rs 2,45,000 crore (Rs 2450 billion). However, in the last four months, the Indian basket of crude oil has dipped 65.8 per cent to $48.57 per barrel on Thursday from a peak of $142 in July. This has cut the under-realisation numbers significantly.

It typically takes 20-30 days for refiners to take delivery of the crude oil they import. It takes another fortnight for oil to be refined and retailed. When oil prices fall sharply, the refiners incur losses as they would have bought crude oil at higher prices but are able to sell refined products at lower prices. The country's refiners import over three-fourths of its crude oil requirements.

"In this quarter, the inventory losses for the refiners are not likely to be huge. As oil prices have fallen, there will be some loss, but it will not be very steep," said another Mumbai-based analyst.

IndianOil, Bharat Petroleum and Hindustan Petroleum have also got Rs 22,000 crore (Rs 220 billion) worth of oil bonds which they will use to pay off some of the debt of over Rs 1,10,000 crore (Rs 1,100 billion) they have accumulated. The money the companies get from selling the bonds to the Reserve bank of India will also be used to buy crude oil for which the three companies spend around $5 billion every month.