Whalesbook
Further Fuel Price Hikes Likely
Experts suggest that state-run oil marketing companies (OMCs) will likely increase petrol and diesel prices again. This action is intended to help offset the substantial losses they have incurred from persistently high crude oil prices. India's OMCs recently raised fuel prices by nearly ₹4 per liter, ending a two-and-a-half-month period where they absorbed these costs, which were worsened by the conflict in West Asia.
Navigating Inflationary Pressures
Although fuel prices are deregulated, the government, which is the majority shareholder in OMCs, influences pricing decisions. Saurav Mitra, partner (oil & gas) at Grant Thornton Bharat, noted that while there is room for more gradual price increases, such adjustments must consider broader economic factors. He highlighted the government's challenge in balancing the potential inflationary impact on consumers with the financial strain on OMCs.
The recent price adjustments are expected to add about 20 basis points to retail inflation, potentially impacting household budgets. India's Consumer Price Index (CPI) rose slightly to 3.48% in April, staying below the Reserve Bank of India's target of 4%. However, wholesale inflation (WPI) surged sharply to 8.3% in April, reaching a 42-month high, mainly due to a significant increase in fuel and energy costs.
Sustained Cost Pressures on OMCs
The recent ₹4/liter hike offers only minor relief to OMCs. Given reported losses of ₹13-15 per liter on petrol and ₹17-19 per liter on diesel, these adjustments are not enough to fully cover the financial stress caused by elevated Brent crude prices and a weakening rupee. With crude oil remaining above $100 per barrel and the Indian rupee depreciating, the cost of imports continues to rise, increasing cost pressures for OMCs. Currency depreciation alone could erase substantial gains from any price revisions. Sujata Sharma, joint secretary in the oil ministry, stated that OMCs are losing approximately ₹750 crore daily, and the government currently has no plans to offer financial support.