- Petrol and diesel prices have been hiked by nearly Rs 7.5 per litre over the past 10 days
- But the latest increase may not be enough to fully erase oil marketing companies' losses
- Petroleum Minister Hardeep Singh Puri had said OMC under-recoveries were around Rs 1,000 crore a day
Petrol and diesel prices have been hiked by nearly Rs 7.5 per litre over the past 10 days as the government looks to help oil marketing companies (OMCs) offset losses triggered by disruptions linked to the Middle East war.
But the latest increase may not be enough to fully erase OMC losses.
Petroleum Minister Hardeep Singh Puri had said OMC under-recoveries were around Rs 1,000 crore a day. If sustained for a full year at the same rate, that would translate into roughly Rs 3.6 lakh crore.
Considering annual diesel consumption of 11,340 crore litres and petrol consumption of 6,230 crore litres, their combined consumption stands at 17,570 crore litres. Based on this, a Rs 1 per litre price hike offsets OMC losses by about Rs 17,570 crore, according to the SBI Ecowrap report.
On a straight-line basis, this suggests a cumulative price increase of around Rs 20.5 per litre would be needed to fully offset losses. With Rs 7.5 per litre already hiked, this implies an additional increase of roughly Rs 13 per litre may still be required to bridge the gap.
"Despite the latest hike in retail prices of auto fuels, the under-recoveries of oil marketing companies remain stubbornly high due to increasing losses in domestic LPG sales and the high premium in crude markets," Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA, told NDTV.
ICRA estimates that at crude prices of $120-125 per barrel, and considering the past 10-year average crack spreads for auto fuels, OMCs are incurring losses of about Rs 700-800 crore per day on the sale of auto fuels and domestic LPG, even after factoring in the recent fuel price hikes, he added.
He said this level of under-recovery is unsustainable.
Currency movements could also quickly erode the gains from fuel price hikes. The SBI report noted that even a Rs 2 depreciation in the rupee could raise the effective crude import cost enough to offset the benefit of a Rs 3 per litre fuel price increase.
Fuel demand patterns also complicate the picture.
It is observed that price hikes are often followed by a short-term drop in fuel consumption, limiting OMCs' ability to immediately recover losses.
"The historical data shows that a hike in petrol and diesel prices is followed by an immediate decline in consumption, although it recovers thereafter with no visible annual drop," the SBI Ecowrap report said.
