Fuel Prices Could Climb to Rs 12 per Litre to Offset Current Losses for Oil Marketing Companies

State-Run Oil Marketing Companies May Need to Hike Auto Fuel Prices Up to Rs 12 per Litre

State-run oil marketing companies, including Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp, may need to hike auto fuel prices up to Rs 12 per litre to be able to offset the losses being incurred on the sale of petrol and diesel.

According to analysts, despite consecutive four hikes in prices of petrol and diesel last month, the state-run oil marketing companies are presently making a marketing loss of Rs 5.5 per litre on petrol and Rs 4.5 per litre on diesel.

The widening West Asia conflict has pushed international crude oil prices to above $100 per barrel, analysts say that the OMCs will need to hike auto fuel prices up to Rs 12 per litre to be able to reach break-even.

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As per the government, the three OMCs are incurring losses amounting to Rs 550 crore per day as they continue to procure crude oil at elevated rates while selling petrol and diesel at lower rates.

The OMCs are also logging heavy losses on domestic LPG sales, with Rs 650 a cylinder under-recovery, and Rs 30 a litre under-recovery on the sale of aviation turbine fuel (ATF) or jet fuel.

Analysts also said that if disruptions in the Strait of Hormuz persist and crude prices remain elevated, further retail price hikes will be necessary. With OMCs making huge marketing losses, analysts believe that some form of government compensation/support is possible.

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In May, OMCs raised petrol and diesel prices to nearly Rs 7.5 a litre, as the Iran war kept Brent crude prices above $100 a barrel for most of the three months that the conflict has been raging.

The situation is expected to worsen if disruptions in the Strait of Hormuz persist and crude prices remain elevated, further retail price hikes will be necessary.