New Delhi: A Rs4 per litre hike in petrol and diesel prices is in the offing if state-owned fuel retailers are to return to pre-Karnataka election margin levels, brokerage firms have said.
No sooner had Karnataka polled to elect a new state government, state-owned Indian Oil Corp. Ltd Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd (BPCL) on Monday ended a 19-day hiatus in revising petrol and diesel prices and reverted to the practices of changing rates on a daily basis.
Since then petrol price has risen by 69 paisa a litre, including a 22 paisa hike effected Thursday that took rate in Delhi to Rs75.32, the highest in almost five years. Diesel prices have gone up by 86 paisa a litre, including 22 paisa increase on Thursday that took the rate to their highest-ever of Rs66.79 a litre in Delhi.
“Our computation suggests that downstream oil marketing companies (OMCs) are required to increase retail prices of diesel by a steep ₹ .5-4 a litre and petrol by ₹ 4-4.55 per litre in the coming weeks to earn normative gross marketing margins of ₹ .7/litre," Kotak Institutional Equities said in a report.
The price hike is based on the assumption that global prices of diesel and petrol and rupee-dollar exchange rate remain stable hereon. “We note that the lack of price hikes over the past three weeks, before Karnataka elections amid a sharp increase in global crude/product prices, has resulted in sharp moderation in gross marketing margins to around Rs0.5-0.7 a litre," it said.
Last week, ICICI Securities had said that auto fuel net marketing margins were weak at Rs0.31 a litre due to no price hike after 24 April. OMCs returned to daily price change from 14 May. They are estimated to have lost about Rs500 crore on absorbing higher cost resulting from the spike in international oil rates and fall in rupee against the US dollar.
The benchmark international rate for petrol, used for revising the rate on 24 April, had gone up from $78.84 per barrel to $82.98 on 14 May. It has further risen to $83.30, indicating larger daily price hikes would be needed to level retail price with cost. Similarly, benchmark international diesel rates during this period have climbed from $84.68 per barrel to $88.93. Also, the rupee has weakened to Rs67.06 per US dollar from Rs66.62, making imports costlier.