&imwidth=800&imheight=600&format=webp&quality=medium "Petrol-Diesel price hike explained: Why ₹3 increase may not be enough")
Petrol and Diesel prices were increased by Rs 3 per litre each on Friday as the state-run oil companies faced losses. Petrol in Delhi now costs Rs 97.77 per litre, up from Rs 94.77, while diesel prices have risen to Rs 90.67 per litre. This increase comes just 16 days after the assembly election concluded in Assam, Kerala, Tamil Nadu, West Bengal and Puducherry.
Shares of India’s three premier Public Sector Undertaking (PSU) Oil Marketing Companies (OMCs): Hindustan Petroleum Corporation Ltd (HPCL), Bharat Petroleum Corporation Ltd (BPCL), and Indian Oil Corporation Ltd (IOC), were trading up to 3 per cent lower on Friday, May 15, as the price hike was announced after four years. This drop stems from the realisation that the ₹3 hike is grossly insufficient to offset mounting under-recoveries caused by global crude oil prices sustaining above $100 per barrel. CNG prices in Delhi were also increased by ₹2 per kg to ₹79.09 per kg. Before Friday’s revision, oil companies were reportedly losing sufficient revenues.
Financial and operational impact
Industry experts believe that industries would need to break free from the impact of rising crude oil prices. Oil companies were reportedly losing around ₹14 per litreon petrol, ₹42 per litre on diesel, and ₹674 per LPG cylinder. Each of these companies' combined EBITDA is expected to see a bump of ₹45,000 crore to ₹48,000 crore following the immediate relief.
“ICRA estimates that at a crude price of $105-110/barrel and considering the past 10-year average crack spreads of auto fuels, oil marketing companies incur a loss of about Rs 500 crore daily on the sale of auto fuels and domestic LPG, even after factoring the fuel price hike,” said Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA Ltd.
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These PSU Oil Marketing Companies had purchased Russian Oil at low prices during the 2022-24 Russia-Ukraine war, but the domestic prices were frozen at much higher prices. However, the margin was not pocketed by the state-run OMCs as they were sourcing 35 per cent Russian Ural crude, and the remaining 65 per cent they were sourcing from West Asian Markets at a high price of $110 per barrel. So they just managed to stay afloat despite people paying high prices for petrol and diesel. The main profit was pocketed by private refineries like Reliance, which imported cheap Russian crude and sold it to the European market.
