Why Retail Fuel Prices Are Still High Despite Crude’s Biggest Fall Since 1991
Indian consumers are yet to benefit from a plunge in crude oil prices as a depreciating rupee partly eroded the gains and oil retailers earn a higher mark-up on every litre of fuel sold.
Benchmark Brent crude tumbled as much as 31.5 percent, its worst single-day drop since 1991, after Russia balked at Saudi Arabia-led OPEC’s demand for deeper output cuts to cope with falling demand amid coronavirus outbreak, triggering an all-out price war.
Still, while crude oil prices have halved in value since the start of the year, retail fuel prices of petrol and diesel declined only 6-7 percent, according to data compiled from the website of India’s largest oil marketer—Indian Oil Corporation Ltd.
That’s because the Indian rupee depreciated nearly 3.6 percent against the U.S. dollar this year—in part wiping off gains that could have translated into cheaper auto fuels.
And oil marketing companies revise petrol and diesel prices daily based on a 15-day average, factoring in global fuel indices. Which means market prices reflect at the filling station with a fortnight’s lag.
But oil retailers still have a bigger room to cut prices. That’s because after factoring in a weaker rupee and the 15-day price average, the Brent is still down 17 percent year-to-date against a 6-7 percent fall in prices at the pump.
What that means is oil marketing companies are earnings higher gross marketing margin or mark-up on sale of every litre of petrol and diesel. And Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. stand to gain the most as retail sale of fuel contributes nearly 60 percent and 40 percent, respectively, to their operational profit, according to the data compiled by BloombergQuint.
Kotak Securities said higher marketing margins on auto fuels amid declining global crude prices will help Indian oil companies offset sustained weakness in refining margins and one-time inventory loss.