Fuel Price Freeze May Be Lifted as Government Considers Passing on Increased Crude Costs

Fuel Prices in India May Rise as State-Run Retailers Face Mounting Losses

Petroleum and Natural Gas Minister Hardeep Singh Puri had previously stated that Oil Marketing Companies (OMCs) were losing around Rs 24 per litre on petrol and Rs 30 per litre on diesel, as retail prices remained unchanged despite crude oil prices crossing $100 per barrel in March.

The possible hike in fuel prices comes as global crude prices remain elevated, with Brent crude hovering around $108 per barrel. Retail petrol and diesel prices in India have largely remained unchanged since early April 2022, compressing marketing margins and increasing pressure on OMC balance sheets.

The government has been in discussions with OMCs and the Finance Ministry about possible price hikes. Brent crude nearly doubled since the start of the war in West Asia, and OMCs are incurring under-recoveries on sales of petrol, diesel, and LPG.

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According to rating agency ICRA, state-run OMCs are currently making negative marketing margins of around Rs 14 per litre on petrol and Rs 18 per litre on diesel at prevailing crude prices. Industry data also points to sustained pressure on the margins of the fuel retailers.

The government is not currently considering a compensation package for retailers who sell fuel at a loss. Officials pointed to distortions in pricing calculations, particularly the role of crack spreads, to argue that the scale of losses being claimed may be overstated.

The official added that under-recoveries should not be equated with actual losses. "When companies talk about losses, one has to be careful. They may still be making profits overall. What is happening is that their expected revenues are lower than what they had projected earlier. So, there may be under-recoveries, but that does not automatically translate into actual losses in all cases," the official said.

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The pricing debate is unfolding against a backdrop of rising fiscal pressure, with the Centre already taking a hit on fuel taxes. A Rs 10 per litre reduction in excise duty on petrol and diesel translates into a revenue impact of about Rs 1.7 lakh crore over a full year.

The pressure is not limited to fuel alone. Rising fertiliser costs are adding to concerns about expenditure. Imported urea has become significantly more expensive, in some cases almost doubling in price. So, there is fiscal stress on both the expenditure side and the revenue side.

The government also flagged upside risks to inflation if global conditions remain tight. "While it is difficult to give precise numbers, an upward movement in inflation is almost a given under the current circumstances," the official said.

The timing and extent of any price hike will depend on global crude trends and the government's broader approach to balancing inflation, fiscal pressures, and energy pricing.