Fuel rates need another Rs 3/litre hike for oil marketing companies to revive normal marketing margins: Analysts

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Published: June 11, 2020 8:05 AM

OMCs made super normal marketing margins of Rs 14-18/litre in auto fuels in April and early May, by keeping prices unchanged amid falling global prices. However, their margins took a hit as retail prices remained stagnant even after the government hiked excise on transportation fuel by Rs 10 per litre on petrol and Rs 13 per litre on diesel on May 5.

OMCs made super normal marketing margins of Rs 14-18/litre in auto fuels in April and early May, by keeping prices unchanged amid falling global prices.

Retail auto fuel rates will have to be increased by another Rs 3 per litre if the state-run oil marketing companies (OMCs) are to revive their marketing margins to the normal levels of Rs 3 per litre, analysts pointed out. Auto fuel marketing margins are currently running in negative territory, as OMCs absorbed the higher excise duties levied on these products, while retail petrol and diesel rates remained unchanged for a long time amid rising global prices.

Oil marketing companies raised retail fuel prices of auto fuels for the fourth day in a row on Wednesday, ending a month-long hiatus, to cope up with the gradual increase in global oil prices. Diesel is now priced at Rs 71.62/litre in the national capital and petrol at Rs 73.4/litre, as against Rs 69.39/litre and Rs 71.26/litre, respectively, on Saturday.

ICICI Securities pointed out that net marketing margin of OMCs had slipped into the red at minus Rs 1.56/litre on June 1. Auto fuel margins are calculated on the average prices of gasoline and diesel in the international market, which is reset once every 15 days. “In an increasing price environment, if OMCs do not increase prices, then on 16-June-20 (next reset), OMCs would make losses on both gasoline and diesel,” analysts at Credit Suisse pointed.

OMCs made super normal marketing margins of Rs 14-18/litre in auto fuels in April and early May, by keeping prices unchanged amid falling global prices. However, their margins took a hit as retail prices remained stagnant even after the government hiked excise on transportation fuel by Rs 10 per litre on petrol and Rs 13 per litre on diesel on May 5.

“No daily price change in the last two months is disappointing and our confidence in ‘deregulation’ has declined further,” analysts Nomura had said. However, average auto fuel margins of the OMCs in Q1FY21 are seen to be at Rs 5.1/litre, more than twice the levels recorded in the corresponding quarter last year, even if it stays negative in June.

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