A hike of Rs 4 per litre in petrol and diesel prices could be in the pipeline if state-owned fuel retailers go back to pre-Karnataka election margin levels, according to brokerage firms.
As soon as Karnataka elected a new state government, state-owned Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd (BPCL) on Monday ended a 19-day break on hiking petrol and diesel prices and switched to the practice of changing rates on a daily basis.
Since then petrol price has risen by 69 paisa a litre, including a 22 paisa hike effected Thursday that took rate in Delhi to Rs75.32, the highest in almost five years. Diesel prices have gone up by 86 paisa a litre, including 22 paisa increase on Thursday that took the rate to their highest-ever of Rs66.79 a litre in Delhi.
“Our computation suggests that downstream oil marketing companies (OMCs) are required to increase retail prices of diesel by a steep Rs3.5-4 a litre and petrol by Rs 4-4.55 per litre in the coming weeks to earn normative gross marketing margins of Rs2.7/litre,” Kotak Institutional Equities said.
The price hike projection is based on the assumption that global prices of diesel, petrol and rupee-dollar rate remain stable from 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 Rs0.5-0.7 a litre,” it said.
ICICI Securities had said in a report last week that auto fuel net marketing margins were struggling at Rs0.31 a litre due to the decision to defer price hike after April 24. OMCs returned to daily price change from May 14.
The benchmark international rate for petrol, used for revising the rate on April 24, had shot up from $78.84 per barrel to $82.98 on May 14. It has further risen to $83.30, indicating larger daily price hikes would be needed to level retail price with cost. Benchmark international diesel rates during this period have climbed from $84.68 per barrel to $88.93. Also, the rupee has weakened to Rs67.06 per US dollar from Rs66.62, making imports costlier.