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Since daily fuel price revision, petrol, diesel prices rose 8%: Icra

The government had allowed the oil marketing companies to follow dynamic pricing of auto fuel

Press Trust of India  |  New Delhi 

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and diesel prices have jumped 8 per cent since daily price revision was implemented in mid-June, Icra said today, warning that a sustained price hike can hit demand growth and create inflationary pressures.

The rise in can be attributed to a 14 per cent increase in international and diesel prices beside rise in commission paid to pump dealers, the rating agency said in a report.

The retail selling price of in Delhi showed a 7.9 per cent increase from Rs 65.23 per litre as on June 17 to Rs 70.41.

Besides rise in international oil prices, the increase was also due to a 40 per cent rise in dealer's commission to Rs 3.57 per litre from Rs 2.55 earlier and a moderate increase in marketing margins, it said.

"Sustained rise in fuel prices, in absence of moderation in (excise duty and VAT), could, however, impact the growth in demand, besides leading to inflationary pressures in the economy," Icra said.

The government had allowed the companies to follow dynamic pricing of auto fuels across the country from June 16, 2017.

Due to the earlier practice of fortnightly revisions, the price changes were at times sharp which would now be gradual, leading to lesser resistance from the public and lower risk of political intervention, it said.

Icra's K Ravichandran said, "As dealers and some consumers were able to predict price movements, they had been resorting to bulk purchase or draw down from the inventory towards the end of the fortnight, depending on the direction of prices, resulting in some lumpiness in sales and opportunity loss on the marketing margins for oil companies."

With greater autonomy and lower political intervention, oil firms could over time expand marketing margins, albeit increasing competition from private retailers would eventually moderate that.

"Moreover, any intervention by the Government, which limits the freedom of companies (OMCs) in price revisions, in light of rising could be a credit negative," he said.

Icra said Indian refiners will get a short-term margin lift due to disruptions in the US caused by severe

Hurricane Harvey led to the closure of a fifth of the US refining capacity or about 3.2 million barrels per day in August end, dropping capacity utilisation sharply to a seven-year low of 79.7 per cent.

Along with refining, many and petroleum product pipelines were also affected by the hurricane.

"Due to sudden spike in crack spreads (difference between price and product rates) globally due to this disruption which is yet to be fully normalised, the domestic refiners will gain in the form of higher gross refining margins (GRMs) in the near term, leading to improved profitability," it said.

Over the medium to longer term, GRMs of domestic refiners are, however, expected to weaken due to additions to global refinery capacity at 4.4 million barrels per day over 2017- 2020, exceeding the demand growth at 3.3 million barrels a day.

Icra said delays in commissioning of some of the proposed projects and closure of unviable refinery capacities could partly support GRM levels over the medium term.

First Published: Tue, September 26 2017. 18:12 IST