Better marketing margin may trigger fuel price cut of Rs 2-3 per litre

A reduction of Rs 2 to 3 per litre in the price of automobile fuels could be possible if crude prices remain stable and proper marketing margins are maintained, a new report by Investment Information and Credit Rating Agency (ICRA) has said.

According to ICRA, the net realisation of India’s Oil Marketing Companies (OMC) such as Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) is higher than global prices by around Rs 15 per litre for petrol and Rs 12 per litre for diesel as of September 17, 2024. However, if crude prices do stabilise, the cost of fuel could be brought down.

The report noted that a marketing profit of Re 1 per litre on petrol and diesel could counterbalance a Gross Refining Margin (GRM) loss of $0.9 per barrel for India’s refining and marketing industry, adding that bigger margins of marketing are likely to benefit OMCs.

ICRA predicted that operating margins for OMCs in the first half of the fiscal year 2024-’25 (FY25) will tend to be on the positive side, due to a surge in marketing margins despite Gross Refining Margins (GRM) moderating.

AS THINGS STAND

Marketing margins have rallied over the past few weeks after a notable fall in the price of crude oil — a development mainly attributed to depleted demand from China and a slowdown in global economy.

Increase in sales of electric vehicles (EVs), a dip in demand from industries and real estate recession further hit the demand for fuel globally, the ICRA report said. This triggered fall in price. Also, GRM dropped in Singapore during the first half of FY25.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) has decided to postpone its plan for a production cut by at least a couple of months, given the current fall in prices globally.