A ₹12 price hike in petrol and diesel coming after elections?
3 min read 04 Mar 2022, 03:39 PM ISTOil rose above $111 a barrel on Friday in a volatile session as fears over disruption to Russian oil exports in the face of Western sanctions offset the prospect of more Iranian supplies in the event of a nuclear deal with Tehran
PremiumPetrol and diesel prices have not been increased for the past four months in view of assembly elections in five states including Uttar Pradesh. However, oil marketing companies (OMCs) are bearing the pain of surging crude oil prices with marketing margins severely hit amid Russia-Ukraine conflict.
Oil rose above $111 a barrel on Friday in a volatile session as fears over disruption to Russian oil exports in the face of Western sanctions offset the prospect of more Iranian supplies in the event of a nuclear deal with Tehran.
The basket of crude oil India buys rose to $117.39 per barrel on March 3, the highest since 2012, according to information from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry. This compares to an average of $81.5 per barrel price of the Indian basket of crude oil at the time of freezing of petrol and diesel prices in early November last year.
Signs of an escalation in the Russia-Ukraine conflict, with reports of a fire at a Ukrainian nuclear power plant, spooked mnarkets before authorities said the fire in a building identified as a training centre had been extinguished.
Brent crude rose as high as $114.23 a barrel and by 09:20 GMT was up 63 cents, or 0.6%, at $111.09. U.S. West Texas Intermediate (WTI) added 64 cents, or 0.6%, to $108.31 after touching a high of $112.84.
In order to break-even, Petrol and diesel prices need to be increased by over ₹12 per litre by March 16, according to a report by ICICI securities.
International crude oil prices shot above $120 a barrel for the first time in nine years on Thursday before retreating a little to $111 on Friday, but the gulf between cost and retail rates has only widened.
The report noted that massive price hikes are required. "Auto fuel net marketing margin plummeted to be in the red at minus ₹1.54 per litre in February vs ₹5.09 a litre in January and ₹3.97 a litre in Q3FY22," the report said.
"OMCs need a massive price hike of ₹12.1 a litre on or before 16 March just to breakeven and a price hike of ₹15 a litre is required for net margin to be ₹2.5 a litre on 16 March, it said.
JPMorgan in another report said it expects daily fuel price hikes to restart across both gasoline and diesel. "With state elections getting over next week, we expect daily fuel price hikes to restart across both gasoline and diesel. Pump prices have been unchanged since November."
"We estimate that at spot Brent ($105/bbl) and Diesel prices, the OMCs are losing ₹5.7 per litre as against normalised margins of ₹2.5 a litre. We would caution investors that given the volatility in crude, diesel and forex, these numbers are dynamic and could change from day to day," JPMorgan said
The seventh and final phase of polling for the Uttar Pradesh legislative assembly is on March 7 and the counting of votes is slated for March 10.
Russia makes up for a third of Europe's natural gas and about 10% of global oil production. About a third of Russian gas supplies to Europe usually travel through pipelines crossing Ukraine.
But for India, Russian supplies account for a very small percentage. While India imported 43,400 barrels per day of oil from Russia in 2021 (about 1 per cent of overall its imports), coal imports from Russia at 1.8 million tonnes in 2021 made up for 1.3% of all coal imports. India also buys 2.5 million tonnes of LNG a year from Gazprom of Russia.
While supplies at the moment seem to be of little worry for India, it is the prices that are a cause of concern.
Domestic fuel prices - which are directly linked to international oil prices as India imports 85 per cent of its oil needs - have not been revised for a record 120 days in a row.
Rates are supposed to be revised on a daily basis but state-owned fuel retailers IOC, BPCL and HPCL froze rates on sooner did electioneering to elect a new government in Uttar Pradesh, Punjab and three other states started.
Petrol costs ₹95.41 a litre in Delhi and diesel is priced at ₹86.67. This price is after accounting for the excise duty cut and a reduction in the VAT rate by the state government.
