In a positive development for consumers, Indian fuel prices may soon see a reduction of Rs 2-3 per litre for petrol and diesel. According to the credit rating agency Icra, declining crude oil prices and improving margins for state-owned oil marketing companies (OMCs) have created an opportunity for these firms to reduce retail prices.
Factors Driving the Potential Price Cut
Crude oil prices have dropped recently, with India’s crude basket averaging around USD 74 per barrel, a significant decline from earlier this year when prices hovered around USD 83-84 per barrel. The current decrease in crude prices has improved marketing margins for OMCs, including Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL)
This decline comes after a period of high fuel prices driven by global events, including the Russia-Ukraine war and disruptions in oil production. Despite the deregulation of fuel prices in India, these state-owned companies have been cautious about revising prices due to geopolitical uncertainty and market volatility.
Marketing Margins and Financial Impact
Icra noted that marketing margins for OMCs have improved, which is a key factor allowing for the potential price cut. However, a decline in Singapore Gross Refining Margins (GRMs), which fell to approximately USD 4 per barrel in the first half of FY2025, has partially offset this gain. The drop in GRMs was due to weaker demand in major markets like China and Europe, driven by the rise of electric vehicles (EVs) and slowing industrial activity
Icra suggests that OMCs could further absorb the impact of declining refining margins through marketing gains. A marketing gain of Rs 1 per litre could offset a GRM loss of about USD 0.9 per barrel, ensuring profitability even in the current market conditions. This provides the financial headroom for OMCs to lower fuel prices while maintaining overall business stability
Fuel Consumption and Future Outlook
Fuel consumption in India is expected to grow between 3-4% in FY2025, buoyed by increasing economic activity and greater mobility, including air travel. The outlook for the refining and marketing sector remains stable, according to Icra, despite the challenges posed by fluctuating crude oil prices and inventory losses
To support the anticipated rise in demand, OMCs are planning significant capital expenditure to expand their refining capacity. The domestic refining capacity is expected to increase from 256.8 million tonnes to 306 million tonnes in the next few years, enabling these companies to better serve both domestic and export markets(Rediff Money).
Conclusion
While OMCs have not yet announced a concrete timeline for fuel price reductions, the declining crude oil prices and improving marketing margins make a cut in petrol and diesel prices highly likely in the near future. A potential reduction of Rs 2-3 per litre would offer some relief to consumers, who have been grappling with high fuel prices for over a year.
The situation remains fluid, with the possibility of further adjustments based on global crude oil trends and domestic economic factors. Nevertheless, the current market conditions are aligned for a modest price reduction, providing optimism for both consumers and industry stakeholders.
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