Fuel price slide leads to confusion over margin maths of oil marketing cos

In October, finance ministry had cut its production tax on the fuels by Rs 1.50 a litre and had asked OMCs to reduce their marketing margins by Rs 1 a litre to insulate consumers from a surge in global oil prices at the time | Photo: Reuters
On October 4 last year, oil marketing companies (OMCs) had absorbed Rs 1 as marketing margin on the prices of petrol and diesel after international crude oil prices crossed $80 a barrel.

But despite crude price dipping to around $53 a barrel on Wednesday, down 33 per cent from the October high, there is still lack of clarity on whether Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) stopped absorbing Rs 1 as marketing margins. 

On Wednesday, various reports by OMCs and media firms added to the confusion. “OMCs are having gross marketing margin (GMM) on both petrol and diesel of above Rs 5 a litre,” said an industry source. 

He added that the firms are making up for losses and preparing themselves for a likely hold in prices during the upcoming elections. According to a report by Emkay Global Financial Services on December 31, the GMM on diesel and petrol stood at over Rs 7 a litre each.

A Reuters report said on Wednesday that state-owned fuel retailers had stopped absorbing a government-mandated cut of Rs 1 a litre in their marketing margins due to a steep fall in global oil prices. Responding to this, IOC chairman Sanjiv Singh said: “We have not recouped the prices that were absorbed in the month of October.”

This comes at a time when the Emkay report highlighted that for the third quarter of the financial year, GMM on diesel and petrol on a fixed refinery transfer price (RTP) basis stood at Rs 2.5-2.8 per litre. RTP is the price paid by OMCs to the refineries. 

HPCL Chairman and Managing Director M K Surana said: “Pricing is based on a formula. The cut of Rs 1 is not part of our petrol and diesel prices, due to a lower pricing regime.”

The finance ministry, too, had cut its production tax on the two fuels by Rs 1.50 a litre in October, when prices of petrol touched Rs 84 a litre and diesel was at Rs 75.45 a litre. 

On Wednesday, prices of petrol touched a 15-month of Rs 68.65 a litre in Delhi, while diesel was seen at Rs 62.66 a litre. In the last three months, the prices of petrol came down by over Rs 15, while that of diesel by around Rs 13 a litre.

Singh added that IOC has been adjusting retail prices on a daily basis after factoring in the Rs 1 a litre absorption. The absorption in marketing margin for a day was supposed to wipe the annual profit of OMCs by Rs 4,500 crore during financial year 2018-19.

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