Rs 4 per litre rise in petrol, diesel prices in offing; fuel rates to return to pre-Karnataka poll hiatus margin levels

New Delhi: Petrol and diesel prices are set to increase again following the ’no-hike’ period during the Karnataka election. No sooner had Karnataka voted to elect a new state government, state-owned Indian Oil Corp (IOC), Hindustan Petroleum Corp Ltd (HPCL) and Bharat Petroleum Corp Ltd (BPCL) ended a 19-day hiatus in revising petrol and diesel prices and reverted to the practice of changing rates on a daily basis. On Friday, petrol retailed at Rs 75.61 a litre in New Delhi and Rs 83.45 a litre in Mumbai. Diesel was selling at Rs 67.08 a litre in New Delhi and at Rs 71.42 a litre in Mumbai, according to Indian oil data. Fuel costs the most in the financial capital. Mumbai-traded IOC is the country’s largest fuel retailer. Furthermore, petrol and diesel prices could go up by almost Rs 4, to help oil marketing companies (OMCs) recoup losses incurred during the 19-day ‘pause’, according to a report. “Our computation suggests that downstream oil marketing companies (OMCs) are required to increase retail prices of diesel by a steep Rs 3.5-4 a litre and gasoline (petrol) by Rs 4-4.55 per litre in the coming weeks to earn normative gross marketing margins of Rs 2.7/litre,” Kotak Institutional Equities said in a report published on Thursday. That potential hike is based on an assumption that the global price of oil and the rupee-US Dollar exchange rate remain stable hereon. “We note that the lack of price hikes over the past three weeks, before Karnataka elections amid a sharp increase in global crude/product prices, has resulted in sharp moderation in gross marketing margins to around Rs 0.5-0.7 a liter,” the report added. Last week, ICICI Securities had said that auto fuel net marketing margins were weak at Rs 0.31 a litre due to no price hike after 24 April. OMCs returned to daily price revision from 14 May. They are estimated to have lost about Rs 500 crore on absorbing higher cost resulting from the spike in international oil rates and fall in rupee against the US dollar. [caption id=“attachment_4053713” align=“alignleft” width=“380”]  Representational image. Reuters[/caption] The benchmark international rate for petrol, used for revising rate on 24 April, had gone up from $78.84 per barrel to $82.98 on 14 May. It has further risen to $ 83.30, indicating more daily hikes would be needed to level retail price with cost. Similarly, benchmark international diesel rates during this period have climbed from $84.68 per barrel to $88.93. Also, the rupee has weakened to Rs 67.06 per US dollar from Rs 66.62, making imports costlier. This rise in transport fuel prices comes as crude oil prices continue to gain. On Thursday, brent crude oil edged close to $80 per barrel and is currently over $79 per barrel. Prices of transport fuels are now changed on a daily basis, unlike the previous norm of fortnightly revisions. However, the Indian Oil Corporation had suspended the dynamic pricing system for 19 days, “to avoid creating unnecessary panic among the consumers”, until resuming it on Monday, 14 May. In addition, the high rate of excise duty has also contributed to the rise in prices. In the Union Budget 2018-19, the government had reduced the basic excise duty on petrol and diesel by Rs 2. The government also abolished additional excise duty on fuel. But to compensate the move on the fiscal front, it increased the road cess to Rs 8 per litre. -- With inputs from agencies