State-run oil marketing companies including Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are in the spotlight after fuel prices were increased for the fourth time in less than 10 days on Monday, May 25.
Petrol prices were raised by Rs 2.61 per litre while diesel prices went up by Rs 2.71 per litre, pushing petrol prices in Delhi above the Rs 102 mark.
With this latest revision, the cumulative increase in petrol and diesel prices has now nearly touched Rs 7.5 per litre since fuel price revisions resumed on May 15 after a long freeze.
The market reaction was immediate. The share price of Indian Oil Corporation climbed over 3.5%, while HPCL surged nearly 5% intraday.
BPCL also traded firmly in the green, surging 4% intraday as investors reacted positively to improving earnings prospects for oil marketing companies (OMCs).
What is making investors more optimistic this time is not just the fuel price hike itself, but the fact that global crude oil prices have started cooling off sharply after weeks of geopolitical tension-driven rally.
Why fuel prices surged in the first place
The sharp rise in domestic fuel prices was largely triggered by the sudden rally in global crude oil prices over the past few months.
International crude prices had surged more than 50% since late February following escalating tensions in West Asia after the US-Israeli strikes on Iran.
At the same time, disruptions in shipments through the Strait of Hormuz which is one of the world’s most important oil transit routes created fresh supply concerns across global energy markets.
India, being one of the world’s largest crude oil importers, remains highly vulnerable to fluctuations in global oil prices. A rise in crude prices increases import costs for Indian refiners and oil retailers, putting pressure on fuel marketing margins.
The recent weakness in the Indian rupee also added to the pressure because crude oil purchases are made in US dollars.
For several months, state-run oil companies had largely absorbed a part of the cost increase instead of fully passing it on to consumers. However, with crude prices remaining elevated for an extended period, fuel price revisions resumed from May 15.
Global crude prices suddenly cool off
Interestingly, even as domestic fuel prices moved higher again, global crude oil prices saw a sharp correction on Monday.
Brent crude slipped more than 5% to near $98 per barrel, while West Texas Intermediate crude fell below $92 per barrel in early trade.
The fall came after US President Donald Trump indicated that negotiations linked to reopening the Strait of Hormuz were progressing positively and that discussions with Iran were moving in a constructive direction.
City-wise fuel prices move higher again
After the latest revision, petrol prices in Delhi rose to Rs 102.12 per litre from Rs 99.51 earlier, while diesel prices increased to Rs 95.20 per litre from Rs 92.49.
In Mumbai, petrol prices climbed to Rs 111.21 per litre and diesel reached Rs 97.83. Kolkata saw petrol prices rise to Rs 113.51 and diesel to Rs 99.82. In Chennai, petrol now costs Rs 107.77 per litre while diesel is priced at Rs 99.55.
The prices of fuel vary from state to state. This is mainly because of local taxes and levies. But, the broader trend remains the same. As of now, consumers are now paying higher prices compared to the levels seen before May 15.
Furthermore, the repeated hikes also come at a sensitive time as transportation costs, logistics expenses and inflation concerns remain closely linked to fuel prices in India.
What investors need to watch now
For companies such as IOC, BPCL and HPCL, profitability largely depends on the gap between crude oil procurement cost and the retail selling price of petrol and diesel.
When crude prices decline while fuel prices remain elevated domestically, marketing margins improve sharply.
At the same time, the recent fuel price hikes provide additional pricing cushion for these companies after months of pressure from elevated global crude prices.