NEW DELHI: Amid mounting losses, public sector oil firms announced the much-anticipated increase in petrol and diesel prices, raising it by around Rs 3 a litre across metros on Friday, which was lower than expected. Piped kitchen gas prices were, however, left unchanged.
Oil company executives did not rule out the possibility of a further increase in petrol and diesel prices, but that will depend on a green light from the government, including extent and timing.
The hike for the two auto fuels will only partially cover the losses of state-run oil retailers with ratings agency Crisil estimating under-recoveries at Rs 10 a litre for petrol and Rs 13 for diesel. Oil companies follow a complex formula, which largely links retail prices to global prices for petrol and diesel. On top of that, taxes are added.
While the cost of crude for Indian refiners has increased 53% from an average $69 a barrel in February to over $106 so far in May, there is a jump of around 75% each for petrol and diesel. Fuel prices in India had remained frozen since April 2022, barring March 2024, when the Centre reduced excise duty by Rs 2 a litre. The increase on Friday came a fortnight after the elections in four states and Puducherry ended.
Global Fuel Price Comparison
Earlier this week, the daily under-recovery for Indian Oil, Bharat Petroleum and Hindustan Petroleum was pegged at Rs 1,000 crore. Ratings agency ICRA said that they may now be incurring losses of around Rs 500 crore a day, including on the sale of cooking gas cylinders to households below the market price. Besides, the Union government has only allowed partial adjustment of aviation fuel prices for domestic scheduled airlines.
Government officials have argued that the government and oil companies had so far insulated citizens from an increase when several other countries were raising prices and imposing curbs. Government data showed that petrol prices increased over 44% in the US and diesel surged 48% in a little over two months. In Canada, the jump was 32% and 33%, respectively, while petrol prices in New Zealand rose nearly 31% and diesel by around 89%. Private fuel retailers such as Nayara Energy and Shell increased pump prices in March and April, respectively.
Expert Analysis
Sehul Bhatt, director of Crisil Intelligence, called the hike a step towards unwinding a prolonged under-recovery cycle. "At their peak, oil marketing companies were absorbing losses of Rs 23-30 per litre on petrol and diesel, translating into a combined daily loss of Rs 1,300-1,400 crore across petrol, diesel and LPG. Government intervention through excise duty relief of Rs 10 per litre narrowed these to Rs 14 and Rs 17 per litre, reducing the daily loss run rate to around Rs 1,000 crore," Bhatt said.
