Auto-fuel prices may rise further by Rs 3/litre to support OMC marketing margins

By: |
February 27, 2021 1:45 AM

The Centre’s tax (basic excise, surcharge, agri-infra cess and road/infra cess) is currently Rs 31.83/litre for diesel and Rs 32.98/litre for petrol.

On Friday, retail petrol price in Delhi was at an all-time high of Rs 90.93/litre, rising by about 9% in the last two months.On Friday, retail petrol price in Delhi was at an all-time high of Rs 90.93/litre, rising by about 9% in the last two months.

Retail prices of auto-fuels may rise by another Rs 3/litre as state-run oil marketing companies (OMCs) will likely want to improve their marketing margins amid rising global crude and product prices, analysts feel.

The marketing margin of Rs 1.56 per litre in the ongoing quarter till date is the lowest encountered by OMCs in the last nine quarters and with recent snowstorms impacting refinery operations in the US, the margin will fall further if retail prices are unchanged.

On Friday, retail petrol price in Delhi was at an all-time high of Rs 90.93/litre, rising by about 9% in the last two months. “More hikes are needed to prevent margin from plunging in Mar’21 and being over Rs 2.5/litre from Apr’21,” ICICI Securities said in a recent note, adding that “retail price hikes of Rs 2.9/litre is required for net margin to rise to over Rs 2.5/litre at latest international prices”.

The price of Indian basket of crude is currently at $63.79/barrel, up from $50/barrel in mid-December, supported by global demand recovery and voluntary production cuts from major oil exporting nations. “If crude rallies further and settles higher and excise duties are not cut, we see pressure on marketing margins in FY22E which along with higher interest expenses could hurt OMC earnings,” analysts at Jefferies warned. However, the brokerage firm said that OMCs might get a relief from rising global prices in the form of higher inventory gains, ranging between $2 and $8 per barrel in 4QFY21.

The Centre’s tax (basic excise, surcharge, agri-infra cess and road/infra cess) is currently Rs 31.83/litre for diesel and Rs 32.98/litre for petrol. In March and May, 2020, surcharge and cess on auto fuels were cumulatively increased by Rs 13/litre on petrol and Rs 16/litre on diesel. Analysts at Bank of America recently said that the Centre may cut auto fuel taxes by Rs 5/litre to ease pressure on consumers as average price of global crude oil is seen to be around $60 per barrel in FY22.

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