Hike of Rs 12 per litre for petrol and diesel needed for OMCs to break-even: ICICI Securities

With international oil prices – on which domestic fuel retails are directly benchmarked – spiking in the last two months to exceed $ 1110 a barrel, state-owned fuel retailers “need a massive price hike of Rs 12.1 per litre on or before March 16, 2022, just to breakeven and a price hike of Rs 15.1 is required” after including margins for oil firms, ICICI Securities said in a report.

Petrol and diesel prices have been on a freeze for the past four months in view of assembly elections in states like Uttar Pradesh.

India’s basket of crude oil purchase rose to $ 117.39 per barrel on March 3, the highest since 2012, according to information from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry. This compares to an average of $ 81.5 per barrel price of the Indian basket of crude oil at the time of freezing of petrol and diesel prices in early November last year.

“Auto fuel net marketing margin is minus Rs 4.92 per litre on March 3, 2022, and Rs 1.61 in Q4 FY22-to-date,” ICICI Securities said. “However, net margin is likely to plummet to minus Rs 10.1 per litre on March 16 and minus Rs 12.6 on April 1 at latest international auto fuel prices.”

The brokerage said, “steep price hikes are required as the strength in gross refining margins does not suffice for sharp quarter-on-quarter fall in net auto fuel marketing margin”.

Russia makes up for a third of Europe’s natural gas and about 10 per cent of global oil production. About a third of Russian gas supplies to Europe usually travel through pipelines crossing Ukraine. While India imported 43,400 barrels per day of oil from Russia in 2021 (about 1 per cent of overall its imports), coal imports from Russia at 1.8 million tonnes in 2021 made up for 1.3 per cent of all coal imports. India also buys 2.5 million tonnes of LNG a year from Gazprom of Russia. While supplies at the moment seem to be of little worry for India, it is the prices that are a cause of concern.

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