A recent reduction in crude oil prices has improved margins on retail auto fuels, providing state-owned companies with room to cut petrol and diesel prices by Rs 2-3 per litre, according to rating agency ICRA.
India’s crude oil basket averaged USD 74 per barrel in September, down from USD 83-84 per barrel in March, when fuel prices were last reduced by Rs 2 per litre. ICRA noted that marketing margins for Indian Oil Marketing Companies (OMCs) have improved due to the fall in crude prices.
“There appears to be headroom for a downward revision in retail fuel prices if crude prices remain stable,” said Girishkumar Kadam, Senior Vice President and Group Head at ICRA. He estimated that net realisation for OMCs was higher by Rs 15 per litre for petrol and Rs 12 per litre for diesel compared to international prices in September.
Petrol and diesel prices have been frozen since March, and retail selling prices (RSPs) have remained unchanged since a Rs 2 reduction in March 2024. Petrol is currently priced at Rs 94.72 per litre in Delhi, while diesel costs Rs 87.62 per litre.
The crude price drop, driven by weak global economic growth and increased US production, has rekindled hopes of a reduction in petrol and diesel prices, which have been mostly frozen since 2021.
State-owned retailers like Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum have not fully exercised their pricing freedom since late 2021, even though petrol and diesel prices were deregulated.
In 2022, a sharp rise in international oil prices due to the Russia-Ukraine conflict led to a Rs 10 per litre hike in fuel prices, followed by excise duty cuts, bringing prices down. Since then, there has been little movement in prices, with the last reduction occurring in March 2024.
ICRA also highlighted the impact of declining Singapore Gross Refining Margins (GRMs), which have fallen to about USD 4 per barrel in the first half of the current fiscal year due to reduced demand and rising electric vehicle sales in China and Europe.
Despite the drop in GRMs, improved marketing margins are expected to help OMCs maintain profitability. However, inventory losses from the sharp decline in crude prices may affect their Q2 FY2025 results.
India’s petroleum consumption grew by 5% year-on-year in FY2024 and is expected to grow by 3-4% in FY2025, driven by economic progress and increasing mobility.
The country’s refining capacity is also set to increase to 306 million tonnes over the next three to four years from the current 256.8 million tonnes, supporting increased consumption and exports.
ICRA’s outlook for the refining and marketing sector remains stable.
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