State-run oil marketing companies (OMCs) have not changed petrol and diesel prices for a week now while crude oil has crossed $50 a barrel mark. The rise in crude oil prices may dent marketing margins if not passed on. However, Indian OMCs do have a cushion to absorb the crude price hike.
Petrol price in Mumbai has touched Rs 90.34 per litre, while diesel is sold at Rs 80.51 per litre, according to the Petroleum Planning and Analysis Cell (PPAC). Both have been at the same price since December 7. In the global market, Brent crude oil prices last week touched $50 per barrel for the first time since March.
Analysts estimate for every $1 per barrel rise in crude prices, marketing margins for OMCs contract by Rs 0.45 per litre, if not passed on to retail consumers. “Going forward if crude prices shoot up above $55 per barrel, then OMCs are likely to lose.
Analysts with ICICI Securities in a November 26 note said: “The hike in petrol and diesel retail price by Rs 0.53-0.95 per litre during November 20-24 has meant that net margin is now estimated at Rs 0.23-1.73 per litre on December 16 and December 1. Further price hikes are required and we are hopeful of the same to ensure net margins remain at Rs 2.0- 2.5 per litre.”
There has been an increase in excise duty during the Covid period. With fuel demand now returning, there is a scope for the government to reduce the excise rates, without hurting the revenue earned from duties. However, there is no official word yet on any discussion around change in excise duty.
The Indian Oil Corporation (IOC) last week said its refining utilisation was back to 100 per cent in November. The state-run refiner attributed the higher utilisation to fuel demand being back to pre-Covid levels.
India Ratings expects OMCs to be able to manage marketing margins at Rs 3 to 5 litre, despite the change in crude oil dynamics.