Petrol, Diesel Prices Likely To Increase By Rs 4 Per Litre

A Rs 4 per litre increase in petrol and diesel prices is in the offing if state-owned fuel retailers are to return to pre-Karnataka poll hiatus margin levels, brokerage firms said.

No sooner had Karnataka polled to elect a new state government, that state-owned Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. 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 paise per litre, including a 22 paise hike effected today that took rate in Delhi to Rs 75.32 per litre, the highest in almost five years. Diesel prices have gone up by 86 paise a litre, including a 22 paisa increase today that took the rate to their highest-ever of Rs 66.79 a litre in Delhi.

“Our computation suggests that downstream oil marketing companies are required to increase retail prices of diesel by a steep Rs 3.5-4 a litre and gasoline prices by Rs 4-4.55 per litre in the coming weeks to earn normative gross marketing margins of Rs 2.7 per litre,” Kotak Institutional Equities said in a report.

The increase is based on assumption that global price of diesel and petrol and Rupee-U.S. 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 Rs 0.5-0.7 a liter,” it said.

Last week, ICICI Securities had said that auto fuel net marketing margins were weak at Rs 0.31 a litre due to no price hike after April 24. OMCs returned to daily price revision from May 14. They are estimated to have lost about Rs 500 crore on absorbing higher cost resulting from the spike in international oil rates and fall in rupee against the U.S. dollar.

The benchmark international rate for petrol, used for revising rate on April 24, had gone up from $78.84 per barrel to $82.98 on May 14. It has further risen to $83.30, indicating more daily 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 Rs 67.06 per U.S. dollar from Rs 66.62, making imports costlier.

With Brent crude rising to $80 per barrel, are petrol and diesel prices in India set to increase even further? Watch this interview with Aditi Nayar, principal economist at ICRA.