Third hike in auto fuel prices this week, OMC under-recoveries still high

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State-run oil marketing companies hiked retail prices of petrol and diesel prices by another 80 paise per litre on Friday, the third such increase this week. However, IOC, BPCL, HPCL still suffer substantial under-recoveries from below-cost sale of the two auto fuels, meaning there could more increases in the coming days.

Sumit Pokharna, vice-president and oil analyst with Kotak Securities, said if we assume the weighted average fortnightly price of Brent crude at $115 per barrel, OMCs’ gross marketing margin under-recovery on diesel was Rs 15.46 per litre on Thursday, while on petrol it was Rs 13.18 per litre.

Moody’s Investors Service said on Thursday that state-run fuel retailers have together lost around $2.25 billion (Rs 17,000 crore) in revenue between November and March third week by keeping petrol and diesel prices unchanged despite a sharp rise in crude oil prices. Auto fuel prices in India have remained unchanged since November 4, 2021, despite crude oil prices averaging around $111/barrel (bbl) in the first three weeks of March 2022 compared to around $82/bbl in early November.

Even though OMCs’ revenue losses from auto fuel sales during the price-freeze period are high, the losses are seen to have been offset to a large extent by the high gross refining margins enjoyed by them in the current quarter. Avishek Datta, oil and gas analyst with Prabhudas Lilladher, said: “For Q4FY22, despite marketing losses, we expect OMCs to make profits of Rs 17,200 crore against Rs 9,200 crore in the previous quarter on the back of strong GRMs and inventory gains of Rs 22,500 crore.”

Moody’s also noted that given the price hikes, it is expected the hikes will be gradual and occur over a period of time rather than being a one-time adjustment. “Until such time, the refining and marketing companies can cover the increase in feedstock costs either by an increase in selling prices or a reduction in excise duties or both, they will have to continue to absorb a proportion of the increased feedstock costs which will hurt their profitability and increase borrowings,” it said.