Fuel prices may need to rise up to Rs 12/litre for OMCs to offset current losses

NEW DELHI : Fuel prices may need to rise up to Rs 12/litre for OMCs to offset current losses. State-run oil marketing companies may need to increase auto fuel prices up to Rs 12 per litre to be able to offset the losses being incurred on sale of the two fuels, as per analysts.

Despite the consecutive four hikes in prices of petrol and diesel last month, the state-run oil marketing companies are presently making a marketing loss of Rs 5.5 per litre on petrol and Rs 4.5 per litre on diesel, according to analysts.

With the widening West Asia conflict that has pushed international crude oil prices to above $100 per barrel, analysts say that the OMCs will need to hike auto fuel prices up to Rs 12 per litre to be able to reach break-even.

As per the government, the three OMCs including Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp are incurring losses amounting to Rs 550 crore per day as they continue to procure crude oil at elevated rates while selling petrol and diesel at lower rates.

“Currently OMCs marketing margins on sale of petrol is -Rs 5.5 per litre and -Rs 4.5 per litre on diesel. Over and above that, they are also incurring heavy losses on sale of LPG. Even if OMCs raise petrol prices by overall Rs 12 per litre (including earlier hikes), they might be able to reach break-even in sales of auto fuels,” said Prashant Vasisht, Senior Vice President and Co-Group Head at ICRA.

The OMCs are logging Rs 650 a cylinder under-recovery on domestic LPG sales amid rising international prices, Sujata Sharma, joint secretary at the petroleum ministry said on June 1. Similarly, the under-recoveries on the sale of aviation turbine fuel (ATF) or jet fuel stand at Rs 30 a litre.

Analysts also said that if disruptions in the Strait of Hormuz persist and crude prices remain elevated, further retail price hikes will be necessary. With OMCs making huge marketing losses, analysts believe that some form of government compensation/support is possible.

In May, OMCs raised petrol and diesel prices to nearly Rs 7.5 a litre, as the Iran war kept Brent crude prices above $100 a barrel for most of the three months that the conflict has been raging.

Source : Moneycontrol