Petrol, Diesel Price Hike Outlook: The burden of inflation continues to mount for the common citizen as Petrol and diesel prices were raised by Rs 2.61-2.71 per litre on Monday-- a fourth increase in less than two weeks. With the latest revision, cumulative increases in petrol and diesel prices have nearly reached Rs 7.5 per litre since prices were first increased on May 15, after an over 70-day freeze, despite higher crude prices due to the Middle East crisis.
The gradual hike in prices is part of a state-owned fuel retailer's continued effort to pass on rising international oil prices to consumers.
Fuel Price Hike
Despite these hikes in retail oil prices, the country's three state-owned oil marketing companies—Indian Oil Corporation, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Corporation Limited—are still grappling with significant losses due to elevated oil prices in the international market and a decline in the rupee against the US dollar.
Speaking on the impact of the West Asia conflict, ONGC Director (Exploration) Sushma Rawat said crude oil prices have remained highly volatile amid uncertainty over the conflict.
"Whenever there is a declaration that there is a peace accord, the crude prices start to dip. And when you realise that there is no solution, the prices go up again," Rawat said.
She said India had so far shielded consumers from the full impact of the surge in global energy prices.
Loss of Rs 1.2 lakh crore due to price control for 74 days
Global crude oil prices remained elevated for most of the time since the war began on February 28. Despite the sharp increase in oil prices, retail prices of petrol and diesel were kept stable in India for 74 consecutive days.
Meanwhile, oil companies were buying crude oil at higher prices but only to sell it at stable rates in the domestic market, and that has resulted in a massive loss for them on their book. By the time the price hike was first announced, just after the results of the assembly elections in five states, the cumulative losses of the three state-owned oil companies had exceeded Rs 1.2 lakh crore.
Holding the retail prices steady would deepen the losses further as India imports approximately 88% of its crude oil needs from abroad. Therefore, any global geopolitical upheaval directly impacts India's import bill and fuel economics.
Will There Be More Price Hikes Ahead?
Considering the scenario, the recent price hike has reduced oil companies' daily losses, but not completely eliminated them. According to analysts, every 50 paise increase in fuel marketing margins improves oil companies' earnings before interest, taxes, and depreciation by approximately 7 to 11 per cent. This is why even a small increase in fuel prices significantly boosts companies' profits.
According to industry estimates, when crude oil prices were at their peak, these companies were collectively incurring losses of approximately Rs 1,600 crore per day. The government eventually allowed a gradual price increase, but the pace of rate increases in India has been much slower than the rise in international oil prices.
Therefore, chances of a few more rounds of price hikes would not be a surprising move.
Sukhmal Kumar Jain, former marketing director of Bharat Petroleum Corporation Limited, said that due to rising crude oil prices and a weakening rupee, the state-owned oil companies are under huge financial pressure.
"The public sector oil companies are still in heavy under-recoveries," Jain said, adding that crude prices had risen from around USD 65-70 per barrel to USD 110-115 per barrel during the conflict period.
Crude Prices Decline
Meanwhile, amid optimism around the resolution of the blockade at the Strait of Hormuz and a diplomatic agreement between Iran and the U.S., the global crude oil prices fell by approximately 5 per cent.
Markets are hopeful that easing geopolitical tensions could stabilise oil supply routes and alleviate fears of blockages in the Strait of Hormuz, one of the world's most important oil transit routes. If crude oil prices remain soft, pressure on Indian fuel prices could ease.
However, analysts caution that even if a diplomatic solution is reached, it will take time for supply chains and shipping routes to return to normal.
Hence, Insurance premiums, freight costs, and geopolitical risks could keep crude oil prices elevated in the near future.
Also Read: Fuel Price Hike: Kolkata Tops Petrol Rates At Rs 113.51, Mumbai Next; Check City-Wise Rates
Petrol, Diesel Price Hike Timeline
The fuel prices--petrol and diesel-- in the retail market have been increased by a total of more than Rs 7 per litre in several phases over the past 11 days.
First, the prices were hiked by Rs 3, then by 90 paise, then by 87 paise, and most recently by Rs 2.61 per litre. However, according to financial market estimates, this increase is not enough to cover oil companies' losses.