According to the sources, OMCs are likely to increase petrol and diesel prices by Rs 7-8 per litre in the first tranche after the election results.
State-run oil marketing companies Indian Oil, Hindustan Petroleum and Bharat Petroleum are planning to hike retail prices of auto fuels — petrol, diesel — in phases starting late this week or early next week as crude price nudged $140 per barrel in international trade and is hovering around $130 per barrel. The under- recoveries on petrol and diesel have increased to Rs 10-12 per litre in the last 15 days and have become unsustainable, sources from these companies said.
However, it is unlikely OMCs will recover the entire amount soon. It is going to be difficult for the government to ‘give its nod’ to OMCs for the pass-through of additional costs from higher crude prices at one go, given the public sentiments and the high inflation.
The auto fuel prices, officially deregulated, have not seen any change since November 4, 2021. The prices have been put on hold in the context of the assembly elections to five states that concluded on Monday.
According to the sources, OMCs are likely to increase petrol and diesel prices by Rs 7-8 per litre in the first tranche after the election results.
OMCs may have to continue to bear some of the burden from cost spiral, as their marketing margins have been high. Marketing margins before the price freeze in November was Rs 4-5/ litre. Since the prices have not changed the marketing margins at present are in the negative.
R Ramachandran, former director-refineries at BPCL, said, “It’s a tight rope between the government and the OMCs to balance between revenue generation and profitabilities of the OMCs.”
In fact, the under-recoveries since November 4, 2021, are expected to be as high as Rs 42 per litre. The Indian basket of crude have now risen to $121 per barrel. On November 4, the day the price freeze came into effect the Indian basket was around $83 per barrel.
“The oil marketing companies are in discussions with the government to allow an increase in petrol and diesel prices as current under-recoveries are unsustainable. If there cannot be immediate price hike, an excise duty cut should be considered now that crude has crossed $120/barrel,” a company official said.
At present, the Centre’s taxes on petrol and diesel are Rs 27.9/litre and Rs 21.8/litre, respectively.
“On previous two occasions, the prices were raised immediately after the elections as the under-recoveries were not very high in comparison to today’s situation. The situation has worsened due to Russian attack on Ukraine this time,” another official said.
Experts believe India can take a leaf from other Asian counterparts — Japan and South Korea — which have provided subsidy and duty relief to counter the increase in global crude oil price.
Lim Jit Yang, advisor for oil markets at S&P Global Platts Analytics, said, the increase in crude price has prompted Asian importers to rethink their fiscal road map. “Japan, for example, has decided to provide subsidies to refiners and oil product importers in the current quarter with the aim of curbing the price rise. South Korea has lowered taxes on auto fuels by up to 20% for six months from November.”
Although India imports around 85% of its crude requirement, its dependence on Russia is only for 2-3% and that too is replaceable and can be substituted by crude from other countries. Experts believe, Indian refiners will see some impact on gross refining margins and increase in inventory carrying costs due to extended period of price rise.
