Petrol and diesel prices increased by ₹3 per litre each on Friday — the first hike in more than four years — as state-run oil marketing companies (OMCs) passed on part of the burden from elevated crude oil prices triggered by the prolonged West Asia conflict, though analysts said the hike remains insufficient to fully offset mounting losses.
The latest increase pushed petrol prices in Delhi to ₹97.77 per litre from ₹94.77 earlier, while diesel prices rose to ₹90.67 per litre from ₹87.67. CNG prices were also increased by ₹2 per kg in major cities, taking rates in Delhi to ₹79.09 per kg and Mumbai to ₹84 per kg.
Economists estimate the immediate direct impact of the fuel hike o retail inflation at 12-20 basis points, with total effects—including secondary pass-through—likely ranging between 15-30 bps over the coming months.
Price Revisions
Industry estimates suggest the three state-run fuel retailers — Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) — were together incurring losses of nearly ₹1,000 crore daily before the latest revision.
“Following the recent ₹3/litre fuel price hike, OMCs continue to face material under-recoveries,” said Sourav Mitra, Partner, Oil and Gas, Grant Thornton Bharat. “Prior to the hike, under-recoveries were at around ₹13-15/litre for petrol and ₹17-18/litre for diesel. Almost ₹10/litre retail hike would have been needed to cover 50% of under-recoveries,” he said. Mitra added that there remains “clear headroom for further calibrated price hikes” if crude prices remain elevated and the government decides to reduce pressure on OMC balance sheets.
The hike comes after global crude oil prices surged more than 50% since the US-Israeli strikes on Iran on February 28 and Tehran’s subsequent retaliation disrupted energy flows through the Strait of Hormuz, through which nearly one-fifth of global oil and gas trade passes.
Despite the sharp increase in global energy prices, retail fuel prices had remained frozen since April 2022, barring a ₹2 per litre cut in March 2024 ahead of the Lok Sabha elections.
Conflict Premium
ICRA said the increase provides only limited relief to fuel retailers.
“The modest hike in retail price of ₹3/litre for petrol and diesel provides limited relief to the oil marketing companies,” said Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA.
ICRA estimates that at crude oil prices of $105-110 per barrel, OMCs would still incur losses of around ₹500 crore per day on petrol, diesel and LPG sales even after the latest revision.
“Even after the latest retail fuel price hike, OMCs are still estimated to be losing around ₹3.2/litre on petrol and nearly ₹7.5/litre on diesel,” Vasisht said. According to Petroleum Planning and Analysis Cell (PPAC) data, refiners’ average crude import cost rose to $104.68 per barrel in May from $69.01 per barrel in February before the conflict escalated.
Harshraj Aggarwal, Energy Lead Analyst at YES Securities, said diesel marketing margins remain sharply negative even after the latest hike.
“The gross marketing margin of petrol could still be at negative ₹7/litre while diesel may remain at negative ₹13.5/litre,” he said.
India consumes nearly 155 million litres of petrol and 308 million litres of diesel every day.
Aggarwal said the ₹3/litre increase could reduce the burden on OMCs by around ₹1.4 billion per day, but additional hikes may still be required if crude prices remain elevated. A ₹3/litre increase in diesel prices could raise freight operating costs by around 2-3%, with heavy vehicle freight costs increasing by nearly 60-100 paise per kilometre, he added.
The latest increase also comes as Prime Minister Narendra Modi this week called for fuel conservation, lower travel and reduced fuel consumption to contain the country’s import bill and ease pressure on foreign exchange reserves.