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Elections may prove to be a boon for consumers as oil cos are unlikely to raise prices during this period, even at the cost of squeezing margins
Despite rise in international crude prices, petrol and diesel prices are unlikely to be increased due to the upcoming state elections in November and general elections in 2024, Moody’s Investors Service said. Fuel prices have been static for the last 18 months.
Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) control roughly 90 per cent of the market.
Crude prices have been rising since August, which has led margins of oil marketing getting squeezed.
“High crude oil prices will weaken the profitability of the three state-owned oil marketing companies in India — IOC, BPCL and HPCL,” Moody’s said in a report.
“The three companies will have limited flexibility to pass on higher raw material costs by increasing the retail selling prices of petrol and diesel in the current fiscal year because of upcoming elections in May 2024,” Moody’s said.
The average crude price was $78 in the first quarter of the 2023-24. This has nor risen 17% to around $90 per barrel.
“An extension in production cuts by the Organization of the Petroleum Exporting Countries (OPEC) of around 1 million barrels a day until December 2023, combined with Russia’s extended export cuts of around 300,000 barrels a day over the same period have driven oil prices higher,” the report said.
Nonetheless, high oil prices are unlikely to be sustained for long as global growth weakens, it said.
“The decline in the OMCs’ marketing margins has been mitigated to some extent by the increase in gross refining margins (GRMs). The benchmark Singapore GRMs have improved since June in part due to continued growth in liquid fuels consumption in the region as well as planned refinery outages which constrained the supply of petroleum products in the region,” it said.