No Daily Change In Petrol, Diesel Prices Is Hurting Indian Refiners
How unchanged retail fuel prices is impacting oil marketing companies...
Crude oil prices tumbled to a record low and rebounded, but petrol and diesel rates at fuel stations in India remained unchanged for two months. While consumers didn’t benefit, India’s state-run fuel retailers are also feeling the squeeze.
Brent, the Asian benchmark, fell to $19 a barrel, the lowest since February 2002, as an economic uncertainty and the oil price war between Saudi Arabia and Russia caused a global glut. Marketing margins, or mark-up on every litre of petrol and diesel, for fuel marketing companies hit a peak.
But even as crude fell, India raised levies by Rs 10 and Rs 13 a litre on petrol and diesel, respectively. As retail sale prices, despite being deregulated, didn’t change, fuel retailers adjusted it against their earnings.
That caused the mark-up on sale of every litre of petrol and diesel to drop to Rs 8.7 and Rs 3.7, respectively, as on May 6, from the high of Rs 18.7 and Rs 16.5, according to data compiled by BloombergQuint.
Not just that. Oil marketers revise petrol and diesel prices daily based on average crude oil price in the previous 15 days. The rate at the filling stations also varies with the movement of rupee against the dollar.
While the domestic currency has depreciated nearly 6% this year, Brent has risen to $35 a barrel. Based on the 15-day average, the gross marketing margin stands at Rs 0.6 and Rs 0.5 a litre, for petrol and diesel, respectively.
That’s below the normal level of Rs 2-3 a litre, according to Jefferies. And if the crude remains at $35 and the retail sale price doesn’t change, the mark-up may even turn negative.
Retail fuel prices were kept unchanged due to high volatility in crude prices, MK Surana, chairman and managing director of Hindustan Petroleum Corp. Ltd., said during a conference call hosted by Antique Stock Broking. Earlier too, oil marketers have refrained from changing fuel prices during such volatile times.
According to Jefferies, daily price revisions by refiners has to come back so that marketing margin normalises and investor confidence in “deregulation” is restored.
That comes when demand for retail fuels has started rising. The complete lockdown to contain Covid-19 had caused the oil demand to fall below 50% of the normal sales.
The normal average sales through an outlet are around 170 kilolitres a month, Nitin Goyal, treasurer of All India Petroleum Dealers Association, said in another conference call hosted by Centrum Broking. Despite the record marketing margin earlier, state-owned and private oil refiners were unable to benefit as volumes remained very low, he said.
According to Jefferies, assuming normal demand, every Re 1 per litre change in gross marketing margin affects the earnings per share of Indian Oil Corp. Ltd., Bharat Petroleum Corp. Ltd. and HPCL by 30%, 31% and 59%, respectively.