Global crude breached $80-mark per barrel on Thursday, first time in four years since November 2014. It gave consumers a reason to worry as even essential commodities are getting costlier day after day in the country. The $80 mark per barrel of crude is set to cause stiff hike in petrol and diesel prices in the coming days.
The brokerage firms have already predicted that petrol and diesel prices might be up by Rs 4 per litre if State-owned fuel retailers are to return to pre-Karnataka poll hiatus margin levels.
On the contrary, oil retailers are not ready to buy the speculation of such brokerage firms. “We are not denying the fact that there would not be hike in petrol and diesel prices in near future. As we all know the price hike depends upon the demand growth and deliberate cut of supply by oil producing countries. As far as hike is concerned, we expect maximum of Rs 2 or a little more increase in both petrol and diesel prices in the near future,” a senior official of PSU oil retailer told The Pioneer on condition of anonymity.
“The trend of rising oil prices are due to steady demand growth and a landmark deal by oil producing countries, both inside and outside the OPEC cartel, to lower the output,” he said.
Generally, crude oil prices were supported by concerns that US sanctions on Iran are likely to restrict crude exports from one of the biggest producers in the Middle-East. Brent crude oil touched an intraday peak of $79.47 a barrel on Thursday.
Before the Karnataka polls, fuel prices remained unchanged for 19 days. State-owned oil marketing companies such as Indian Oil Corp (IOC), Hindustan Petroleum Corp ltd (HPCl) and Bharat Petroleum Corp ltd (BPCl) are estimated to have lost about Rs 500 crore as they absorbed higher cost resulting from the spike in international oil rates and fall in rupee against the US dollar during this period. The OMCs disposed of the daily revision in fuel prices that was being carried out from June 2017. The idea of daily revision was to link it with continuous change in global crude oil price.
No sooner had Karnataka polled to elect a new state government on Monday OMCs started revising petrol and diesel prices and reverted to the practices of changing rates on a daily basis. Since then petrol price has risen by 69 paisa a litre, including a 22 paisa hike effected on Thursday, taking Delhi petrol price at Rs 75.32, the highest in almost five years. Diesel prices have gone up by 86 paisa a litre, including 22 paisa increase on Thursday that took the rate to their highest ever of Rs 66.79 a litre in Delhi as well.
Similarly, petrol price in Kolkata stood at Rs 78.01 per litre on Thursday, up by 22 paisa compared to previous day price of Rs 77.79 per litre. In Mumbai petrol price stood at Rs 83.16 per litre above 22 paisa compared to the previous day price of Rs 82.94 per litre. And in Chennai it was Rs 78.16 paisa up by 23 paisa versus previous day prices of Rs 77.93 per litre.
“Our computation suggests that downstream oil marketing companies (OMCs) are required to increase retail prices of diesel by a steep Rs 3.5-4 a litre and gasoline (petrol) by Rs 4-4.55 per litre in the coming weeks to earn normative gross marketing margins of Rs 2.7/litre,” Kotak Institutional Equities said in its report.
The fuel price hike is directly influenced by the dipping rupee-dollar forex rate and the increasing global crude oil rate. The rupee has been down by 6 per cent against the US dollar so far this year.
“We note that the lack of price hikes over the past three weeks, before Karnataka elections amid a sharp increase in global crude/product prices, has resulted in sharp moderation in gross marketing margins to around Rs 0.5-0.7 a liter,” the report said.
last week, ICICI Securities had also said that auto fuel net marketing margins were weak at Rs 0.31 a litre due to no price hike after April 24. The OMCs returned to daily price revision from May 14. They are estimated to have lost about Rs 500 crore on absorbing higher cost resulting from the spike in international oil rates and fall in rupee against the US dollar.
The benchmark international rate for petrol, used for revising rate on April 24, had gone up from $78.84 per barrel to $82.98 on May 14. It has further risen to $83.30, indicating more daily hikes would be needed to level retail price with cost.
Similarly, benchmark international diesel rates during this period have climbed from $84.68 per barrel to $88.93. Also, the rupee has weakened to Rs 67.06 per US dollar from Rs 66.62, making imports costlier.