Since daily fuel price revision, petrol, diesel prices rose 8%: Icra

Photo: istock
Petrol and diesel prices have jumped 8 per cent since daily price revision was implemented in mid-June, Icra said today, warning that a sustained price hike can hit demand growth and create inflationary pressures.

The rise in fuel rates can be attributed to a 14 per cent increase in international petrol and diesel prices beside rise in commission paid to petrol pump dealers, the rating agency said in a report.

The retail selling price of petrol in Delhi showed a 7.9 per cent increase from Rs 65.23 per litre as on June 17 to Rs 70.41.

Besides rise in international oil prices, the increase was also due to a 40 per cent rise in dealer's commission to Rs 3.57 per litre from Rs 2.55 earlier and a moderate increase in marketing margins, it said.

"Sustained rise in fuel prices, in absence of moderation in taxes (excise duty and VAT), could, however, impact the growth in demand, besides leading to inflationary pressures in the economy," Icra said.

The government had allowed the oil marketing companies to follow dynamic pricing of auto fuels across the country from June 16, 2017.

Due to the earlier practice of fortnightly revisions, the price changes were at times sharp which would now be gradual, leading to lesser resistance from the public and lower risk of political intervention, it said.

Icra's K Ravichandran said, "As dealers and some consumers were able to predict price movements, they had been resorting to bulk purchase or draw down from the inventory towards the end of the fortnight, depending on the direction of prices, resulting in some lumpiness in sales and opportunity loss on the marketing margins for oil companies."

With greater autonomy and lower political intervention, oil firms could over time expand marketing margins, albeit increasing competition from private retailers would eventually moderate that.

"Moreover, any intervention by the Government, which limits the freedom of oil marketing companies (OMCs) in price revisions, in light of rising fuel prices could be a credit negative," he said.

Icra said Indian refiners will get a short-term margin lift due to disruptions in the US caused by severe hurricanes.

Hurricane Harvey led to the closure of a fifth of the US refining capacity or about 3.2 million barrels per day in August end, dropping capacity utilisation sharply to a seven-year low of 79.7 per cent.

Along with refining, many crude oil and petroleum product pipelines were also affected by the hurricane.

"Due to sudden spike in crack spreads (difference between crude oil price and product rates) globally due to this disruption which is yet to be fully normalised, the domestic refiners will gain in the form of higher gross refining margins (GRMs) in the near term, leading to improved profitability," it said.

Over the medium to longer term, GRMs of domestic refiners are, however, expected to weaken due to additions to global refinery capacity at 4.4 million barrels per day over 2017- 2020, exceeding the demand growth at 3.3 million barrels a day.

Icra said delays in commissioning of some of the proposed projects and closure of unviable refinery capacities could partly support GRM levels over the medium term.

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel