Petrol, diesel prices may be unchanged as OMCs seek higher margins amid oil price drop

OMCs had cut prices of petrol and diesel by Rs 2 per litre in the country in March after a gap of 2 years.

State-run oil marketing companies (OMCs) are expected to keep retail fuel prices unchanged even though crude oil prices have fallen as they aim to stay financially healthy, energy experts said.

Brent crude oil futures traded at about $77.61 a barrel on June 5, compared with $84.22 a barrel on May 28. Global crude oil prices have cooled after a spurt in end-March-early April. Brent prices traded in a range of $82-84 per barrel in May.

“Large oil OMCs have posted improved profits in FY24... Therefore, it can be concluded that under-recoveries in retail fuels are not that significant at this point in time,” said Suman Chowdhury, chief economist at Acuite Ratings & Research. “Given such a scenario, we don’t see any immediate revision in fuel prices.”

Under-recoveries refer to losses that arise from selling fuel below cost.

“There was already a token reduction of Rs 2 per litre in March. If inflationary pressures, however, pick up, the government may cut fuel/LPG prices to provide relief,” added Chowdhury.

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Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation cut prices of petrol and diesel by Rs 2 per litre in the country in March after a gap of two years. The price cut came ahead of parliamentary elections in India held over seven phases from April 19 to June 1.

Somil Gandhi, an analyst at HDFC Securities, said domestic fuel prices are expected to remain unchanged even after the new government forms. He added that the new government might consider bringing petroleum products under the goods and services tax to eventually reduce the burden on consumers.

Healthier margins

The companies did not respond to Moneycontrol's query on the possibility of retail fuel price cuts. The retail price of petrol is Rs 94.72 per litre in Delhi, while diesel is sold for Rs 87.62 per litre, according to information on the Indian Oil website.

In FY24, the performance of OMCs improved on account of healthier marketing margins and lower crude oil prices. The government said on May 10 the OMCs navigated rapidly evolving geopolitics and wide fluctuations in crude oil prices. The combined profit of OMCs stood at Rs 86,000 crore in FY24, the oil ministry said.

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“Margins are positive now for OMCs on both petrol and diesel. Because it is not an under-recovery situation, fuel price revision could be a measured decision as crude oil prices are not very high and marketing margins are positive. Crude oil prices have come down, but the margins are not very healthy too, so scope of price cut is very limited as of now,” said Prashant Vasisht, VP & co-head, corporate ratings, ICRA.

Although profit for OMCs was higher in FY24, earnings dropped significantly in the quarter ended March 31. Their combined net profit fell to Rs 12,986.9 crore in Q4 from Rs 21,320.02 crore in the same period last year.

With crude oil prices lower, OMCs are expected to maintain a healthy profit. However, gross refining margins—the profit earned on turning each barrel of crude oil into a refined product—are still low, which might impact their bottom line.

“Globally, GRMs are still low. The Singapore GRM is in the range of $2-$3 per barrel. GRMs have come down from double-digit figures seen till the third quarter (of FY24),” said Vasisht.