Margins on petrol and diesel have turned positive following the softening of international oil prices, but a revision in retail prices may happen only after state-owned oil firms recoup losses they incurred last year, officials said.
State-owned Indian Oil Corporation, Bharat Petroleum Corporation Ltd., and Hindustan Petroleum Corporation Ltd. have temporarily abandoned the daily price revision since last year and have not revised petrol and diesel prices in line with the cost. And the losses they incurred when oil prices were higher than retail selling prices are now being recouped with rates dropping.
Officials said the three firms have been making positive margins on petrol since the fourth quarter of the 2022 calendar year, but diesel, which accounts for the bulk of the fuel sales, has been in the red.
But last month, margins on diesel turned positive with a small 50 paise per litre profit, they said, adding that this, however, was not enough to make up for the past losses.
International oil prices had spiked to $139 per barrel in March 2022 in the aftermath of the Russia-Ukraine war. They have since cooled to $75–76.
At peak, oil firms lost Rs 17.4 per litre on petrol and Rs 27.7 per litre on diesel. In the October-December quarter, oil firms earned a Rs 10 per litre margin on petrol but lost Rs 6.5 on diesel. In the following quarter, the margins on petrol moderated to Rs 6.8 a litre, while diesel earned Rs 0.5 per litre.
Officials said, besides past losses, oil companies want to see if the drop in oil prices will last.
"I guess they will watch the prices for one more quarter (April to June) before deciding to restart fuel price revision," an official said.
Holding prices when input costs were higher than retail selling prices led to the three firms posting net earnings losses. They posted a combined net loss of Rs 21,201.18 crore during April–September despite accounting for Rs 22,000 crore in LPG subsidies announced but not paid.
International oil prices have been turbulent in the last couple of years. It dipped into the negative zone at the start of the pandemic in 2020 and swung wildly in 2022, climbing to a 14-year high of nearly $140 per barrel in March 2022 after Russia invaded Ukraine before sliding on weaker demand from top importer China and worries of an economic contraction.
But for a nation that is 85% dependent on imports, the spike meant adding to already firming inflation and derailing the economic recovery from the pandemic.
So, the three fuel retailers, who control roughly 90% of the market, froze petrol and diesel prices for the longest duration in at least two decades. They stopped daily price revision in early November 2021 when rates across the country hit an all-time high, prompting the government to roll back a part of the excise duty hike it had effected during the pandemic to take advantage of low oil prices.
The freeze continued into 2022, but the war-led spike in international oil prices prompted a Rs 10 per litre hike in petrol and diesel prices from mid-March before another round of excise duty cuts rolled back all of the Rs 13 per litre and Rs 16 per litre increases in taxes on petrol and diesel effected during the pandemic.
That followed the current price freeze that began on April 6, which still continues.
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