The recent Rs 3-per-litre hike in petrol and diesel prices has helped state-run oil companies reduce some of their mounting losses, but the pressure on fuel retailers is still far from over. A senior oil ministry official said on Monday that despite the increase, oil marketing companies (OMCs) are still losing around Rs 750 crore every day because fuel is being sold below cost.
Before the price hike, the daily losses of state-run fuel retailers had reportedly touched nearly Rs 1,000 crore per day as global crude oil prices surged following the conflict involving Iran, Israel and the United States.
At a media briefing, Sujata Sharma, Joint Secretary in the Ministry of Petroleum and Natural Gas, said a bailout package for state-owned fuel companies is currently not being considered.
“There still is Rs 750 crore a day under-recovery,” Sharma said.
The Centre had allowed a Rs 3-per-litre increase in petrol and diesel prices on May 15, marking the first fuel price revision in more than four years. The move came after international oil prices jumped sharply amid fears of supply disruptions through the Strait of Hormuz, one of the world’s most important oil shipping routes.
Even after the price hike, officials said high crude oil prices and the weakening rupee continue to keep domestic fuel prices below actual recovery levels.
Fuel companies still under pressure
Officials said the state-run oil companies had continued selling petrol and diesel at older rates for weeks despite rising international prices in an attempt to shield consumers from sudden price shocks.
However, the delay in revising fuel prices reportedly caused massive losses for the companies. According to estimates shared during the briefing, losses in a single quarter climbed to nearly Rs 1 lakh crore.
Analysts believe the recent increase in petrol and diesel prices may provide some relief to OMCs, but it is unlikely to fully restore profitability if global crude prices remain elevated.
The price rise is also expected to have a limited impact on inflation, though consumers could still feel some pressure through higher transport and logistics costs.
According to Radhika Rao, Senior Economist & Executive Director at DBS Bank, the fuel price increase may slightly reduce fuel demand and help ease the country’s import burden. She estimated that the hike could add around 15-25 basis points to headline inflation, excluding secondary effects.
Experts say hike offers only partial relief
Industry experts said the recent price revision is only a partial correction considering the scale of losses faced by fuel retailers over the past few months.
Prashant Vasisht of Icra said the Rs 3-per-litre increase may not be enough if international crude prices remain high for a longer period.
Meanwhile, Crisil’s Sehul Bhatt described the fuel price hike as a “meaningful, if partial, step” toward reversing the prolonged under-recovery cycle faced by state-owned fuel retailers.
“At their peak, oil marketing companies were absorbing losses of Rs 23-30 per litre on petrol and diesel, translating to a combined daily loss of Rs 1,300-1,400 crore,” Bhatt said.
According to Crisil estimates, government excise duty relief along with the latest fuel price hike has reduced under-recoveries to around Rs 10 per litre on petrol and Rs 13 per litre on diesel.
However, cumulative losses linked to the recent crude oil price surge are still expected to cross Rs 1 lakh crore by the end of May, analysts said.