Petrol and diesel prices, frozen for the past four months given assembly elections in states like Uttar Pradesh, need to be increased by over Rs 12 per liter by March 16 for fuel retailers to break even.
International crude oil prices shot close to $120 a barrel for the first time in nine years on Thursday before retreating a little to $111 on Friday, but the gulf between cost and retail rates has only widened.
With international oil prices – on which domestic fuel retails are directly benchmarked – spiking in the last two months, state-owned fuel retailers “need a massive price hike of Rs 12.1 per liter on or before March 16, 2022, just to breakeven and a price hike of Rs 15.1 is required” after including margins for oil firms, ICICI Securities said in a report.
According to information from the oil ministry, the basket of crude oil India buys rose to $117.39 per barrel on March 3, the highest since 2012, according to information from the Petroleum Planning and Analysis Cell (PPAC).
This compares to an average of $81.5 per barrel price of the Indian basket of crude oil at the freezing of petrol and diesel prices in early November last year.
“With state elections getting over next week, we expect daily fuel price hikes to restart across both gasoline and diesel,” JP Morgan said in a report.
The seventh and final phase of polling for the Uttar Pradesh assembly is on March 7, and the counting of votes is slated for March 10.
“Auto fuel net marketing margin is minus Rs 4.92 per liter on March 3, 2022, and Rs 1.61 in Q4 FY22-to-date,” ICICI Securities said. “However, net margin is likely to plummet to minus Rs 10.1 per liter on March 16 and minus Rs 12.6 on April 1 at the latest international auto fuel prices.” The brokerage said, “steep price hikes are required as the strength in gross refining margins does not suffice for sharp quarter-on-quarter fall in net auto fuel marketing margin.”
Oil prices have been on the boil ever since Russia put its forces on the Ukraine border last month. They spiked after it invaded the central Asian nation on fears that oil and gas supplies from energy giant Russia could be disrupted by the conflict in Ukraine or retaliatory western sanctions.
Russia makes up for a third of Europe’s natural gas and about 10 per cent of global oil production. About one-third of Russian gas supplies to Europe usually travel through pipelines crossing Ukraine.
But for India, Russian supplies account for a tiny percentage. While India imported 43,400 barrels per day of oil from Russia in 2021 (about 1 per cent of overall its imports), coal imports from Russia at 1.8 million tons in 2021 made up for 1.3 per cent of all coal imports. India also buys 2.5 million tons of LNG a year from Gazprom of Russia.
While supplies seem to be of a little worry for India, it is the prices that are a cause of concern.
Domestic fuel prices – which are directly linked to international oil prices as India imports 85 per cent of its oil needs – have not been revised for a record 120 days in a row.
Rates are supposed to be revised daily, but state-owned fuel retailers IOC, BPCL and HPCL froze rates sooner did electioneering to elect a new government in Uttar Pradesh, Punjab, and three other states started.
Petrol costs Rs 95.41 a liter in Delhi, and diesel is priced at Rs 86.67. This price is after accounting for the excise duty cut and a reduction in the VAT rate by the state government.
Before these tax reductions, petrol price had touched an all-time high of Rs 110.04 a litre, and diesel came for Rs 98.42. These rates corresponded to Brent, soaring to a peak of $86.40 per barrel on October 26, 2021. Brent was $82.74 on November 5, 2021, before it started to fall and touched $68.87 a barrel in December.