With the final phase of crucial state assembly elections in five states coming to an end, petrol and diesel prices are expected to rise in the coming days.
Oil marketing companies (OMCs) are feeling the heat as international crude oil prices have risen above $130 per barrel while domestic prices have remained stable for the past four months due to elections.
Brent, the international benchmark, briefly surpassed $139 per barrel today, reaching its highest level since 2008. Oil prices have recently risen on fears that Russia’s invasion of Ukraine will disrupt already scarce supplies.
Russia is one of the world’s largest energy producers, and oil prices were already high prior to the attack due to the global economy’s need for more fuel following its coronavirus-caused shutdown.
India relies on overseas purchases to meet about 85% of its oil requirement, making it one of the most vulnerable in Asia to higher oil prices. To compound things, the Indian rupee tumbled to a record low of 76.9812 per dollar on Monday.
Recently, a report by ICICI Securities said that, in order to break-even, Petrol and diesel prices need to be increased by over ₹12 per litre by March 16.
The report noted that massive price hikes are required. “Auto fuel net marketing margin plummeted to be in the red at minus ₹1.54 per litre in February vs ₹5.09 a litre in January and ₹3.97 a litre in Q3FY22,” the report said.
“OMCs need a massive price hike of ₹12.1 a litre on or before 16 March just to breakeven and a price hike of ₹15 a litre is required for net margin to be ₹2.5 a litre on 16 March, it said.
JPMorgan in another report said it expects daily fuel price hikes to restart across both gasoline and diesel. “With state elections getting over next week, we expect daily fuel price hikes to restart across both gasoline and diesel. Pump prices have been unchanged since November.”
“With the last phase of polling ending on Monday, it is now expected that the government will allow state-owned fuel retailers to return to daily price revision,” an industry official said.
However, oil companies are not expected to pass on the entire loss all at once, and they will moderate it by raising rates by less than 50 paise per litre every day.