Price drop ahead of concerned Maha election as global oil market volatile | commodities

A drop in the price of crude oil — which is turned into fuels such as gasoline and diesel at refineries — has reignited hopes for a cut in gasoline and diesel tariffs, which have been frozen for more than two years except for a pre-election cut. at the beginning of this year.

“Oil prices continue to be volatile. They fell below $70 one day last week, but rose the next day,” the official told reporters here on condition of anonymity.

As long as oil prices remain volatile, state-owned fuel retailers are unlikely to return to daily cost-based rate reviews, he said.

While petrol and diesel prices are deregulated (meaning oil companies are free to set retail rates), state-owned fuel retailers Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), have since the end of 2021 prices have not been revised in line with cost. They froze rates in April 2022 only to cut prices by Rs 2 per liter each, just before this year’s general election, before freezing rates again. Petrol costs Rs 94.72 per liter in the national capital and diesel costs Rs 87.62 per litre.

Industry sources said the three state fuel retailers are making good profits on petrol and diesel but want the trend to continue before deciding on a review.

“They don’t want a situation where they’re cutting prices and they’re facing a situation where international prices are going up,” an official explained.

Brokerage Emkay GLobal Financial Services said in a note last week that it expects IOC, BPCL and HPCL to cut petrol and diesel prices ahead of the November assembly elections in Maharashtra.

“We believe there are expectations of a reduction in the retail price of motor fuels for oil marketing companies (OMCs) amid the upcoming state elections. While not ruling out the same, the model code of conduct for J&K and Haryana is valid for one month. There could be a discount only for Diwali and ahead of the Maharashtra election model code of conduct, which could be Rs 2 per liter for petrol and diesel and possibly with an equivalent increase in excise duty,” it said.

However, during the following month, OMCs can earn above-normal marketing margins, largely covering LPG under-recoveries and inventory losses.

“We estimate July-September implied gross marketing margins at Rs 9.7/8 per liter for petrol/diesel versus Rs 4.7/3.8 in Q1 (April-June) and a normative range of 3.5- Rs 4 each,” the release said.

India imports 85% of its oil requirements and the fuel price is indexed to international rates.

IOC, BPCL and HPCL reported windfall profits totaling around Rs 81,000 crore in the fiscal year ended March 31, 2024, far exceeding their annual earnings of Rs 39,356 crore in the years before the oil crisis.

Retailers have resisted calls to return to daily price reviews and pass on the tariff cuts to consumers on the grounds that prices continue to be highly volatile – rising one day and falling the next – and that they needed to recoup losses incurred in the year they kept rates below cost.

The three companies, which control about 90% of India’s fuel market, have not “voluntarily” changed the prices of petrol, diesel and cooking gas (LPG) for the past two years, leading to losses when the cost of the input was higher and profits when the raw material. prices were lower.

The fuel price freeze, which began on April 6, 2022, saw a loss of up to Rs 17.4 per liter on petrol and Rs 27.7 per liter on diesel for the week ending June 24, 2022. However, the subsequent softening led to the elimination of losses. And in mid-March, they cut petrol and diesel prices by Rs 2 per liter each, even before the general elections were announced.

International oil prices have been turbulent over the past two years. It entered negative territory at the start of the pandemic in 2020 and has swung sharply in 2022 – climbing to a 14-year high of nearly $140 a barrel in March 2022 after Russia invaded Ukraine, before slipping on demand in May weak demand from top importer China and worries about an economic contraction.

But for a nation that is 85 percent dependent on imports, the increase meant increasing already high levels of inflation and derailing the economic recovery from the pandemic.

So the three fuel retailers have frozen petrol and diesel prices for the longest time in two decades. They stopped the daily price review in early November 2021, when rates across the country hit an all-time high, prompting the government to roll back some of the excise duty hike it made during the pandemic to take advantage of low oil prices .

The freeze continued into 2022, but the rise in international oil prices caused by the war led to a Rs 10 per liter increase in petrol and diesel prices from mid-March 2022, before another round of excise duty cuts reduced all 13 Rs per liter and Rs. 16 a liter increase in taxes on gasoline and diesel made during the pandemic.

This followed the current price freeze which began on 6 April 2022 and continued until the 15 March reduction. After that, there was a tariff freeze again.

First publication: September 19, 2024 | 17:25 IST