Retail Fuel Prices May Drop as Margins Improve

A recent decline in crude oil prices is creating an opportunity for state-owned oil marketing companies (OMCs) in India to reduce petrol and diesel prices by Rs 2-3 per litre. According to the rating agency ICRA, the average price of crude oil India imports fell to USD 74 per barrel in September, a significant drop from USD 83-84 per barrel in March when prices were last adjusted.

Improved Margins Signal Potential Price Cuts

The reduction in crude prices has bolstered marketing margins for retail auto fuels. ICRA notes that OMCs enjoyed higher net realizations in September 2024, with petrol priced Rs 15 per litre and diesel Rs 12 per litre above international product prices. Since March 2024, when prices were cut by Rs 2 per litre, retail fuel prices have remained stagnant.

Girishkumar Kadam, Senior Vice President at ICRA, highlighted the possibility of further reductions: “If crude prices stabilize, we estimate a potential downward revision in retail prices by Rs 2-3 per litre.”

Global Trends Impacting Local Prices

The sharp decline in crude oil prices has been influenced by weak global economic growth, increased US production, and OPEC+ delaying its production cuts. This backdrop has reignited hopes for reduced petrol and diesel prices, which have remained frozen for over two years—aside from a brief pre-election reduction.

Since the price freeze began in April 2022, oil companies like Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) have refrained from making adjustments, despite deregulated pricing.

Market Dynamics and Future Outlook

ICRA’s analysis indicates that while the Singapore Gross Refining Margins (GRMs) have moderated significantly due to increased output and reduced demand, the overall profitability of OMCs is expected to remain stable in the first half of FY2025. Despite inventory losses from declining crude prices, operational margins have improved since FY2023, allowing OMCs to recover from previous losses.

The agency projects a 3-4% growth in petroleum, oil, and lubricants consumption in India for FY2025, driven by economic growth and increased mobility. To accommodate this rise, domestic refining capacity is set to increase from 256.8 million tonnes to 306 million tonnes over the next few years.

A Time for Hope

As crude oil prices continue to fall, consumers may soon see relief at the pump. With OMCs poised to adjust prices and enhance refining capacity, the future looks promising for both the industry and motorists alike.