Auto-fuel prices seen rising after elections to support OMC margins

On Wednesday, retail petrol price in Delhi was Rs 90.56/litre, as rates kept falling since March 24 from the all-time high level of Rs 91.17/litre.

Retail prices of auto-fuels is seen to rise again after the assembly elections are over as state-run oil marketing companies (OMCs) will likely want to improve their marketing margins amid rising global crude and product prices, analysts feel.

The marketing margin of around Rs 3.5 per litre in Q4FY21 is the lowest encountered by OMCs in the last nine quarters and with production cuts by OPEC+ and vaccine rollout supporting demand, the margin will fall further if retail prices are raised.

On Wednesday, retail petrol price in Delhi was Rs 90.56/litre, as rates kept falling since March 24 from the all-time high level of Rs 91.17/litre. From the start of January, petrol price has increased 8.2% to the current level while the cost of Indian basket of crude has grown 18.3% to $61.44/barrel in the same period. “Marketing margins fell 27% quarter-on-quarter as OMCs did not pass on the full extent of the crude rally possibly owing to the state elections currently underway,” analysts at Jefferies said in a recent note.

Legislative assembly elections were scheduled between March 27 and April 29 in Assam, Kerala, Tamil Nadu, Puducherry and West Bengal. Voting was over on April 6 in all places except West Bengal, where the election is taking place in eight phases ending April 29. “As in past instances, we expect OMCs to recoup the lost margins post elections if crude remains at current levels,” analysts at the brokerage firm stated, adding that “inadequate price hikes due to elections could weigh on BPCL’s privatisation”.

Marketing margins for OMCs had been impressive in the first nine months of FY21 which had partially offset the hit from lower sales owing to the travel restrictions. The Centre’s tax (basic excise, surcharge, agri-infra cess and road/infra cess) is currently Rs 31.80/litre for diesel and Rs 32.90/litre for petrol. In March and May, 2020, surcharge and cess on auto fuels were cumulatively increased by Rs 13/litre on petrol and Rs 16/litre on diesel.