A petrol pump employee adjusts the fuel rate card as the price reaches highest-ever, in Mumbai. (Source: PTI)

Oil Marketers’ Margins Are Declining Despite Rising Fuel Prices

Gross marketing margins of state-owned oil refiners declined despite a rise in retail fuel prices and a drop in crude oil.

The mark-up that oil marketers earn on sale of every litre of petrol and diesel has been falling since April, after rising for the first three months of 2018, according to data compiled by BloombergQuint.

The margin fell because of costlier crude and the 19-day pre-Karnataka poll freeze on revising retail fuel prices, according to Probal Sen, oil and gas analyst at IDFC Securities. Auto fuel prices are revised based on 15-day average of the benchmark. Sen said a decline in crude oil in the last three days means that oil retailers are left with little room to increase prices.

In April, the gross marketing margin earned on sale of every litre of petrol and diesel declined 12 percent and 14 percent, respectively, over the previous month. So far in May, it’s fallen 70 percent compared with April.

Fuel retailers increased price for the fifteenth straight day. Still, auto fuel prices have not kept pace with rising Brent crude, barring the last three sessions when the Asian benchmark declined nearly 6 percent to $75 a barrel. Crude has gained close to 14 percent so far this year compared to a 5-7 percent rise in petrol and diesel prices.

The oil rally came to a halt as the Organisation of Petroleum Exporting Countries, Russia and their allies discussed plans to boost production for the first time since 2016, responding to soaring prices that have made consumers anxious.

Also read: OPEC and Allies Are Said to Have Already Cleared Oil Surplus

Sen said the marketing margins should normalise given the recent decline in crude prices and the increasing retail fuel prices.

Brokerages, including CLSA, have raised concerns over oil retailers’ ability to sustain marketing margins in the next 12-15 months when states such as Mizoram, Rajasthan, Chhattisgarh and Madhya Pradesh go to polls ahead of the general election in May 2019.

Also read: Oil Retailers Tumble As Brokerages See Margin Pressure Ahead