Oil companies have limited scope to ease this pressure, since raw materials constitute 90% of the total costs, with salaries and transportation another 8%, leaving companies with a thin profit margin of around 2%.
In an exclusive interview to FE, BPCL chairman Ashok Sinha said despite easing of crude prices over the last fortnight, the nearly 100% hike in prices of crude over the last two years has hit profitability of oil marketing firms, since the increase was not fully passed on to consumers.
The governments attempt to raise retail prices of petroleum is still inadequate. Petrol and diesel constitute 50% of the revenues of oil marketing firms.
The difference in supply and demand of crude has narrowed down considerably, but pricing pressures remain. Oil prices are sensitive to changes in the political environment or even the weather conditions, and these may keep them volatile, Mr Sinha added.
Oil companies failed to make investments when the crude prices were low, Mr Sinha said. Now, companies would find it difficult to make investments or bid for stakes in overseas projects since valuations have gone up considerably, he added.
Oil companies are also straddled with high taxation on high speed diesel, and huge underrecoveries.