Govt may ask OMCs to cut fuel prices before assembly elections

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The wait for reduction in petrol and diesel prices seems to have come to an end. According to information received from sources, the government has asked oil marketing companies to accumulate a buffer by temporarily reducing their profits made from petrol and diesel sale. Just before announcing the upcoming legislative assembly elections, the government may also direct these companies to lower petrol and diesel prices. Even if the cost of crude oil increases during that time, the companies will be compensated from the prepared buffer. This way government may also thwart the OMCs from losses.

There has been no change in the prices of petrol and diesel since May of the previous year. The legislative assembly elections in Madhya Pradesh, Rajasthan, and Chhattisgarh are scheduled for this year, likely in November, 2023. The election announcement may take place in September or October. Just before the announcement, the government can instruct oil companies to reduce the prices of petrol and diesel.

Last year, in March, after the start of the Russia-Ukraine war, the cost of crude oil surged above $130 per barrel, and the prices remained above $100 until July, 2022. During that period, petrol and diesel prices also increased, but the government reduced the prices by reducing excise duty. However, since July 2022, the prices of crude oil began to decline, and in June of the current year, the prices fell to $72. Despite the decrease in the cost of crude oil from July 2022 to June 2023, the prices of petrol and diesel did not decrease. Oil companies earned significant profits. Now, just before the legislative assembly elections, the government may ask oil companies to reduce petrol and diesel prices.

The losses incurred by oil companies due to the sales of petrol and diesel have already been compensated, and the companies are sitting on substantial profits. During the quarter of June, Indian Oil reported a profit of ₹13,750 crore, and Bharat Petroleum earned ₹10,644 crore. According to estimates, during the financial year 2023-24, the total profit of the country’s oil marketing companies may exceed ₹1 lakh crore. Based on the strong financial position of these companies, the government can ask the OMCs to reduce petrol and diesel prices before the assembly elections.