There is a possibility for state-owned oil companies to cut petrol and diesel prices as the sales of retail auto fuels have improved due to the lowering of crude oil prices in recent weeks, according to rating agency ICRA.
The rating agency says state-owned oil companies have headroom to cut petrol and diesel prices by ₹2 to 3 per litre.
“The marketing margins on retail sales of auto fuels for the Indian oil marketing companies (OMCs) have improved in recent weeks with the reduction in crude prices,” ICRA said.
“The rating agency anticipates that there is headroom for the downward revision of retail fuel prices if crude prices remain stable at current levels. ICRA’s outlook on the refining & marketing sector remains Stable,” it added.
Crude oil imports were at USD 74 per barrel in September, down from about USD 83-84 a barrel in March, when petrol and diesel prices were last cut by ₹2 per litre.
Global crude oil prices have tumbled in the past few months due to concerns of slow economic growth and high production in the US. This reduction in prices has raised hopes of reducing petrol and diesel prices in India. The OMCs cut prices in March before the announcement of Lok Sabha election dates.
In India, the prices of petrol and diesel are not regulated. However, OMCs such as Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation, have not revised prices in accordance with cost since 2021. Currently, petrol costs ₹94.72 per litre and diesel costs ₹87.62 a litre in Delhi.
Headroom for downward revision
“ICRA estimates that the OMCs’ net realisation was higher by ₹15 per litre for petrol and ₹12 a litre for diesel vis-à-vis international product prices in September 2024 (till September 17),” Girishkumar Kadam, Senior Vice President and Group Head, Corporate Ratings, ICRA, said.
“The retail selling price (RSPs) of these fuels have been unchanged since March 2024 ( ₹2/litre was reduced on petrol and diesel on March 15, 2024) and there appears to be headroom for their downward revision by ₹2-3 per litre, if crude prices remain stable,” he added.
According to ICRA, Singapore’s gross refining margins have moderated significantly in the first half of FY 25 due to drop in crack spreads with higher product output and declining demand.
This is because of low demand in China due to rise in EV sales, dip in real estate sector and weak industry demand. The demand is low in Europe too because of switch towards EVs and poor industrial activties.
“A marketing gain of ₹1 per litre on petrol and diesel would compensate for the GRM loss of USD 0.9 per barrel for the domestic refining and marketing industry,” the ICRA report said.
However, inventory losses due to a sharp decline in crude prices could impact profitability to an extent in Q2 FY2025. Further, the profitability for standalone refiners would take a hit with the declining GRMs.
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