Fuel prices may rise by ₹5 per litre after daily revision restarts

Be ready to face up to ₹4-5 per litre increase in the pump price of petrol and diesel next month with public sector oil marketing companies bracing up to restart daily price revision of the two petroleum products after the lockdown is lifted in June.

Official sources in public sector oil marketing companies said that all fuel retailers had a meeting last week to evaluate the situation and prepare the roadmap for restarting daily fuel revision exercise post Covid-19 related lockdown.

The exercise, could be started even if lockdown is taken into fifth phase from June once the government gives its nod for marginal revision in petrol and diesel prices daily to prevent OMCs from running into big losses by selling auto fuels below cost. There is expectation that an extension of lockdown will now come with more relaxations that could allow market determined pricing for petrol and diesel.

“The oil market has turned the tables this month gaining over 50 per cent from last month’s prices, hovering over $30 a barrel now and rising. If the rising trend continued, oil companies, which absorbed big increase in excise duty on petrol and diesel early this month, would start making losses on sale of petrol and diesel. The sales volume of auto fuel is already down due to a demand squeeze cause by Covid-19 pandemic and lockdown,” said an official of OMC.

Already, the gap between cost and sale price of petrol and diesel for OMCs has reached around ₹4-5 per litre. If this has to be covered over a period of time, given there is no further increase in global prices, auto fuel prices may be increased by 40-50 paisa per day for couple of weeks to cover the losses.

However, government sources indicated that retail price of petrol and diesel may not be allowed to increase beyond a point even if daily price revision restarts. This would mean that the petroleum products could increase marginally every day by 20-40 paisa or even lower till the oil companies are able to eliminate the gap between cost and sales.

The increase in retail price under daily price revision would depend on prevailing oil prices and global oil market at the time to determine the retail price. Going by current trend, crude prices are up over 50 per cent to last month’s prices when even benchmark Brent crude had slipped below $20 a barrel. It is at over $30 a barrel now. But lockdown has also curved demand for auto fuel. This could maintain some check on prices.

Petrol is retailing at ₹71.26 a litre while diesel at ₹69.39 a litre in Delhi. Before this, the two maintained a price of ₹69.59 and 62.28 between March 16 and May 4. The prices rose to current level in Delhi from May 5 as state government raised VAT on the products to raise revenue to meet rising expenditure needed to check Covid-19 spread.

Raising retail prices has also become important for OMCs now as the recent steep excise duty hike without resultant increase in petrol and fiscal prices, has substantially brought down its marketing margins from record high level of ₹12-18 per litre. If it is unable to raise prices when global market is rising, it would start incurring losses that will get steeper as product demand has also fallen by over 50 per cent last month amidst nationwide lockdown.