With oil turning costlier relentlessly — Brent crude went past $80 a barrel on Thursday, up 3.3% from a week ago and a three-and-half-year high, taking the cost of Indian basket to a prohibitive $76 a barrel — and the rupee losing value against the dollar, consumers should brace for more hikes in auto fuel prices. After a 19-day reprieve to consumers owing to assembly elections in Karnataka, oil marketing companies (OMCs) had increased petrol and diesel prices on Monday. Since then, prices have been going up on a daily basis.
It is estimated that every $1 increase in crude price demands an increase of around 63 paise per litre in the prices of both diesel and petrol, and a Rs 1 depreciation against the dollar requires a 50 paise increase in the prices of these fuels. While 47% of petrol prices comprises excise duty and value-added tax, the figure stands at around 40% for diesel. So far, the Centre and states have shown no inclination to cut the taxes. Morgan Stanley expects Brent to hit $90 a barrel in 2020.
For several months continuously, except for major election seasons, OMCs have been revising petrol and diesel prices on a daily basis depending on the rolling 15-day petroleum product prices in the international market. Brent crude price is now at its highest since November 2014.
At the same time, while the rupee gained 10 paise at the end of trade on Thursday to close at 67.70 against the dollar, the Indian currency had fallen to a 16-month low of 68.15 during intra-day trade on Wednesday.
According to analysts, OMCs may try to regain their lost marketing margins. According to a Kotak Institutional Equities (KIE) report, “Marketing margins on auto fuels also moderated sharply over the past three weeks given the lack of price hikes before the Karnataka elections amid a sharp increase in global crude/product prices. OMCs have started increasing retail prices now, but the ask-rate remains high at Rs4-5/litre to earn normative margins.”
OMCs will require to increase retail prices of diesel by Rs 3.50-4 per litre and that of petrol by Rs 4-4.55 per litre in the weeks to come to earn marketing margins of Rs 2.70 a litre. KIE assumes that global product price and the rupee-dollar exchange rate will remain stable.
“We note that the lack of price hikes over the past three weeks, before the Karnataka elections amid a sharp increase in global crude/product prices, has resulted in sharp moderation in gross marketing margins to around Rs 0.5-0.7/litre on the basis of fortnightly rolling average of global product prices and a loss of Rs 0.5-1 per litre at current levels of global product prices and exchange rate,” the report said.