Petrol pumps cap inventory amid hopes of fuel price cut
- Fuel dealers have adopted this norm to cope with anticipated price cuts by oil marketing companies which come with immediate effect
New Delhi: Retail fuel pumps across the country are operating with about three days of stock against the usual inventory of five days over the past month amid speculations of a cut in petrol and diesel prices ahead of general elections.
Fuel dealers have adopted this trend to cope with anticipated price cuts by oil marketing companies (OMC) which could lead to significant financial losses on the stocked fuel as price revisions come with immediate effect.
Despite the reduced inventory, dealers assured that there is adequate supply to meet the expected consumer demand.
"It has been witnessed that since this speculation of price cut started around January, pumps have been running at minimum stock in a bid to avert heavy losses," said a government official on condition of anonymity.
Suneet Bagai, former president of the Rajasthan Petroleum Dealers Association said, “If on an average there is a ₹5 cut (on petrol and diesel) dealers in rural India would lose about ₹1-1.5 lakh, and those in tier-III cities would lose about ₹5-7 lakh. In the case of tier-II cities, the losses may be in the range of ₹10-15 lakh per pump, and for dealers in metro cities it may well be around ₹25-30 lakh.”
He said stocks and capacity vary depending on the region and the demand in that specific area.
"There is a public demand for a cut in fuel prices as it was believed that they would be reduced if prices slip below $80 per barrel. It remained under that level for a considerable time," Bagai said.
“The anticipation was also there ahead of the assembly elections in four states last year and a similar trend in terms of stocks was witnessed across pumps. The purchase, however, increased after the assembly polls, and now in the last 30 days, pumps are again buying less...only keeping levels required to meet the demand.”
He said the losses would be significant for pumps, which have already been operating at low margins, with dealer commissions at the same levels for the seven years. Petrol pump bodies have been seeking an increase in their commission which currently stands at ₹2.90 per litre for petrol and ₹1.85 per litre in the case of diesel.
Stressing that there is no scarcity of fuel at pumps despite the lower purchases by retail outlets, Ajay Bansal, representative of All India Petrol Pump Dealers Association said, "There is no shortage. But yes, if pumps were buying 10,000 litre, they are now purchasing 8,000 litres of fuel. The customer will not suffer."
Petrol and diesel prices have been unchanged since May 2022 when the Centre lowered the excise duty on both the fuel. Reports in December suggested that oil marketing companies may lower fuel prices ahead of the general elections. The Hindustan Times newspaper on 17 January reported that petrol, diesel prices may be cut by ₹5-10 per litre.
Union minister for petroleum and natural gas Hardeep Singh Puri had said on 17 February that OMCs have made robust profits in the past three quarters and in case of another quarter with healthy profits, the companies may consider revising prices.
“The last three quarters’ profits (of OMCs) were good. If the fourth quarter (profits) are also good, then (they) could start looking at (cut in retail fuel prices). Then, there will be basis for that expectation,” he had said.
Oil marketing companies need to determine retail fuel prices on a daily basis under the dynamic pricing mechanism based on international crude prices. However, prices have remained unchanged since May 2022 after the government announced an excise duty cut on both fuels.
Although the government has drawn flak from opposition parties for not adhering to the daily price mechanism for alleged political gains, the Centre has maintained that it is up to the OMCs to decide on the prices based on the international oil prices, freight rates and prevalent exchange rates.
The petroleum minister has time and again said that the OMCs have been "good corporates" as they absorbed the increase in prices in the initial part of the Russsia-Ukraine war and did not raise retail fuel prices when international prices surged to multi-year highs.
The government's latest decision to cut domestic cooking gas prices by ₹100 per cylinder ahead of the general elections has raised anticipation for a fuel price cut.
Responding to a question on a likely price cut, Puri on Saturday told reporters that the decision to reduce retail fuel prices would depend of the stabilization of geopolitical scenario and international oil prices. He further said that oil marketing companies continue to incur under-recoveries on the sale of diesel.
“I will only say that let the situation of outside world stabilize, oil price stable, then it (price cut on petrol and diesel) can be looked...but if you say an attack is taking place somewhere in the world and insurance and freight price go up..." he said citing the continued tension in the Red Sea in West Asia, which may bring further volatility in the energy market.
He also noted that the central government has enabled a reduction in petrol and diesel prices twice since 2021, with the cut in excise duty in November 2021 and May 2022. The excise on petrol has been cut by ₹13 per litre and that on diesel has been reduced by 16% cumulatively on both occasions. Due to these duty cuts, the Centre has forgone a revenue of about ₹2.2 trillion, he said.
India has about 70,000 petrol pumps and most of them are operated by state-run OMCs – Indian Oil Corp Ltd, Hindustan Petroeum Corp Ltd and Bharat Petroleum Corp Ltd. Private players in the segment include Jio-BP, Nayara and Shell.
Queries mailed to IOCL, BPCL, HPCL, Jio-BP, Nayara, Shell and the union ministry of petroleum and natural gas remained unanswered till press time.
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First Published:12 Mar 2024, 12:37 PM IST
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