Oil marketing companies continue to hold petrol and diesel price hike

State-run oil marketing companies (OMCs) have not changed petrol and diesel prices for a week now while crude oil touched $50 a barrel last week, a first since March.
 

The rise in crude oil prices may dent marketing margins if not passed on, however, some say OMCs may have a cushion to absorb.
 

On Monday, petrol price in Mumbai was at Rs 90.34 per litre, while diesel 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.

Petrol and diesel marketing margins will contract if crude prices are not passed on to the retail consumer. Rise in oil prices is expected increase cost of operation (fuel cost) of the refineries,” said Yogesh Patil, senior research analyst at Reliance Securities, last week.
 

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.”
 

Not everyone shares Patil’s concerns. “OMCs tend to hold on to price hikes in a political sensitive situation, similar to the ongoing farmer protests,” said a senior oil and gas analyst who did not wish to be identified. The analyst pointed out OMCs have considerable cushion to absorb further hikes in fuel prices.
 

“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,” the analyst said. 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.
 

“Domestic fuel prices did not see a steep decline even when crude oil prices were low during Q1FY21, in an attempt to earn higher marketing margins. With the current rise in crude oil prices, we expect some recovery to the refining margins, though petrol and diesel spreads have remained weak year-on-year, OMCs may still manage marketing margins in the range of Rs 3 to 5 per litre,” said Bhanu Patni, senior analyst with India Ratings.
 

Patni does not expect OMC’s overall profitability to take a hit. “OMCs can look for higher inventory gains if crude prices continue to rise.”