INVENTORY GAINS

Subject: Economics

Context : Both Indian Oil Corporation Ltd. (IOCL) and Bharat Petroleum Corporation Ltd. (BPCL) have reported strong financial results in the second quarter of this fiscal despite lower operating revenues.

Concept:

• The key item driving profits for both companies in the quarter were “inventory gains”.
• Inventory gains are registered from an appreciation in the value of inventory held by a company.
• 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.