Petrol may rise by Rs 18, diesel by Rs 35: Big fuel price hike likely as oil companies facing heavy losses

Petrol, diesel prices  update:  Fuel prices in India could see a significant hike in the coming weeks as oil marketing companies continue to suffer mounting losses due to rising global crude oil prices.

According to a report by global brokerage firm Macquarie, petrol and diesel prices in the country have remained unchanged despite a steady increase in crude oil costs. This gap between global prices and domestic retail rates has led to heavy financial losses for oil companies.

At present, companies are reportedly losing around Rs 18 per litre on petrol and Rs 35 per litre on diesel. Last month, their daily losses were estimated at nearly Rs 2,400 crore. After the government reduced excise duty by Rs 10 per litre, the losses have come down to around Rs 1,600 crore per day. However, the pressure on companies remains high.

The report suggests that fuel prices may be revised after the completion of elections in key states, including West Bengal and Tamil Nadu.

Global crude oil prices have surged sharply in recent days. In Europe, oil prices for delivery touched close to $150 per barrel, nearing record highs. Benchmark Brent crude futures for June delivery also rose by over 6%, crossing the $100 per barrel mark.

The spike in oil prices comes amid rising geopolitical tensions, particularly after failed peace talks between the United States and Iran. The situation worsened after the US Navy prepared to block ships moving through the Strait of Hormuz, a key global oil route.

Despite deregulation of fuel prices over a decade ago, state-run oil companies, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL), have not revised retail fuel prices since April 2022.

Meanwhile, global oil prices have remained volatile. Following the Russia-Ukraine war, crude prices had crossed $100 per barrel, later dropping to around $70 earlier this year, before rising again to nearly $120 last month due to fresh geopolitical tensions involving Iran.

Sources indicate that the losses incurred in March have wiped out the profits earned by these companies in January and February. As a result, they are likely to report losses for the January–March quarter.

Macquarie’s report highlights that for every $10 per barrel increase in crude oil prices, the loss for oil companies rises by nearly Rs 6 per litre.

India, which imports around 88% of its crude oil requirement, remains highly sensitive to global price fluctuations. Despite this, the country continues to be a net exporter of petroleum products like petrol, diesel, and aviation fuel.

Although the government reduced excise duty in March, the benefit was not passed on to consumers and was instead used to offset company losses. Currently, central taxes stand at about Rs 11.9 per litre on petrol and Rs 7.8 per litre on diesel.

The report also points out that even a complete removal of excise duty would not fully compensate for the losses faced by oil companies.