Petrol price can rise by Rs 5/litre to support OMC marketing margins

The impact has been worst in Maharashtra while Uttar Pradesh, New Delhi, and Chhattisgarh have also been severely affected

Retail prices of auto-fuels are 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.

“With the state elections now over, we expect OMCs to resume retail price increase for auto fuel,” analysts at Credit Suisse said in a recent note, adding that “OMCs need to increase retail prices for diesel by Rs 2.8-3/litre and gasoline (petrol) by Rs 5.5/litre to maintain their FY20 margins.

On Friday, retail petrol price in Delhi was Rs 90.40/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 7.9% to the current level while the cost of Indian basket of crude has grown 24.2% to $64.51/barrel in the same period. The marketing margin of around Rs 3 per litre for diesel in Q4FY21 is the lowest encountered by OMCs in the last nine quarters and despite higher crude prices and cracks, there has been no retail fuel price increase for the past two months.

Legislative assembly elections were scheduled between March 27 and April 29 in Assam, Kerala, Tamil Nadu, Puducherry and West Bengal. “As in past instances, we expect OMCs to recoup the lost margins post elections if crude remains at current levels,” analysts at Jefferies had pointed in mid-April, adding that “inadequate price hikes due to elections could weigh on BPCL’s privatisation”.

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.

With the second wave of Covid-19 and new state-specific lockdowns in April, auto fuel marketing volumes have again taken a hit. The impact has been worst in Maharashtra while Uttar Pradesh, New Delhi, and Chhattisgarh have also been severely affected.