Govt may hike Petrol and Diesel Prices by Rs.12

Petrol and diesel prices, which have been frozen for the previous four months due to assembly elections in states such as Uttar Pradesh, must be raised by more than Rs.12 per litre by March 16 in order for fuel retailers to break even.

International crude oil prices reached above USD 120 per barrel for the first time in nine years on Thursday before falling slightly to USD 111 on Friday, widening the gap between cost and retail rates.

With international oil prices spiking in the last two months, state-owned fuel retailers “need a massive price hike of Rs 12.1 per litre on or before March 16, 2022, just to breakeven, and a price hike of Rs 15.1 is required after including margins for oil firms,” according to ICICI Securities in a report.

According to data from the energy ministry’s Petroleum Planning and Analysis Cell (PPAC), the basket of crude oil India buys jumped to USD 117.39 per barrel on March 3, the most since 2012. This compares to an average of USD 81.5 per barrel for the Indian basket of crude oil at the time of the price freeze on gasoline and diesel in early November last year.

“With state elections wrapping up next week, we anticipate daily fuel price increases to resume across both gasoline and diesel,” JP Morgan stated in a research.

The seventh and final phase of voting for the Uttar Pradesh legislative assembly is scheduled for March 7, with vote counting scheduled for March 10.

“On March 3, 2022, the auto fuel net marketing margin is minus Rs 4.92 per litre, and Rs 1.61 in Q4 FY22-to-date,” according to ICICI Securities. “However, with the latest international car gasoline prices, net margin is anticipated to fall to minus Rs 10.1 per litre on March 16 and minus Rs 12.6 on April 1.” “Steep price increases are essential as the strength in gross refining margins does not enough for the substantial quarter-on-quarter reduction in net vehicle fuel marketing margin,” according to the brokerage.

Oil prices have been on the rise since Russia sent troops to Ukraine’s border last month. They soared after it invaded the Central Asian country, fueling fears that Russia’s oil and gas supplies might be hampered, either by the crisis in Ukraine or punitive western sanctions.

Russia accounts for one-third of Europe’s natural gas and around 10% of world oil production. Approximately one-third of Russian gas exports to Europe typically pass through pipelines that cross Ukraine.

However, Russian supplies account for a relatively modest portion of India’s total. While India bought 43,400 barrels of oil per day from Russia in 2021 (approximately 1% of total imports), coal imports from Russia totaled 1.8 million tonnes in 2021, accounting for 1.3% of total coal imports. India also purchases 2.5 million tonnes of LNG per year from Russia’s Gazprom.

While supplies appear to be of little concern for India at the time, it is the costs that are causing anxiety.

Domestic gasoline costs, which are directly related to international oil prices because India imports 85 percent of its oil, have remained unchanged for a record 120 days in a row.

Pricing are meant to be updated on a daily basis, but state-owned gasoline retailers IOC, BPCL, and HPCL froze rates before elections in Uttar Pradesh, Punjab, and three other states began.

In Delhi, a litre of petrol costs Rs 95.41 and a litre of diesel costs Rs 86.67. This price includes the excise duty reduction and the state government’s reduction in the VAT rate.

Prior to these tax cuts, the price of petrol had reached an all-time high of Rs 110.04 a litre, while diesel cost Rs 98.42. These prices would have resulted in Brent reaching a high of USD 86.40 a barrel on October 26, 2021. Brent was worth USD 82.74 per barrel on November 5, 2021, before falling to USD 68.87 per barrel in December.

Source: Businesstoday