Petrol and Diesel Prices May Increase by ₹25-28 per Litre Following Elections: Kotak Institutional Equities

Crude Oil Price Spike May Soon Hit Indian Retail Consumers

The Indian retail consumers have so far been shielded from the crude oil price spike as the government has kept the petrol and diesel prices unchanged. However, according to Kotak Institutional Equities (KIE), this may change soon.

The brokerage expects a price hike in retail prices of petrol and diesel after the state elections in the absence of a truce in West Asia. Currently, Brent crude oil prices are trading at $104 per barrel as the Strait of Hormuz remains shut following a lack of progress in peace talks between the US and Iran.

Strait of Hormuz: A Critical Route for Global Oil Supplies

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The Strait of Hormuz is a critical route, accounting for about 20% of daily global oil supplies and 40% of Indian crude imports. Iran's 17 April announcement to allow transits through the Strait of Hormuz led to a sharp correction in oil prices. However, the standoff has since worsened.

Impact of Rising Crude Prices on India

As a result of the ongoing crisis, the Indian crude basket rose by $47/bbl in March and $53/bbl in the first half of April. Despite a 13-15% decline in imports, India's crude import bill has increased by $190-210 million per day, according to estimates by the brokerage.

Comparison of Crude Import Bill

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Refiners' Burden

While there is a compelling case for a retail petrol and diesel price hike, domestic LPG and ATF hikes have been modest, and the key relief has been a ₹10/litre excise duty cut. However, this has only provided partial relief. According to KIE's calculations, refiners are facing an increased burden of ₹270 billion per month.

Case for Petrol Price Hike

Kotak believes that the case for a petrol price hike is there, but timing would be crucial. Based on an Indian basket of $120/bbl and low fixed margins ($8/15 per bbl for petrol/diesel), there is a case to raise prices by ₹25-28/litre.