In many parts of India, in the present times, the prices of petrol and diesel have been hovering over the mark of Rs 100 per litre. With the international price temporary rise and fall changes, the oil marketing companies are now compensating for their losses.Â
Table of Contents
Introduction
Even after so, experts and economists have a say that they do not expect the Centre to cut down the taxes on fuels, despite the fiscal space being available, and unfortunately, the consumers are expected to spend excessively on the fuels, bearing high prices. Therefore, such rise of prises have been prosing a threat and challenge to the Indian economy.
Operations of oil companies
The oil companies make earnings from twin businesses – refining and marketing.
From refining, they earn a gross refining margin, which can be calculated,
= value of the refined products at the refinery gate – the cost of the crude.Â
The company performs marketing through retail pumps, in which they earn a margin on refined products.
Financial reports
The three main retail oil companies of India which are state-owned, include Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL).
These companies are expected to see operating profit recovery of up to Rs 1 lakh crore in the current financial year, comparatively to the average of Rs 60,000 crore between the financial years, starting from 2017, and ending in 2022. It is also thrice what was earned in the last financial year, standing at a low of about Rs 30,000 crore, as per the reports.
Gross refining margins were recorded averaging at $15 per barrel, as global demand in the fiscal year, 2024, specifically for Diesel, was comparatively high than the alternative fuels, like Natural Gas shooted up, additionally, European Union putting restrictions on Russian products, following the impact on crude oil because of Russia-Ukraine crisis and production cut by Saudi.
Opinions of the experts
OMCs had incurred significant losses in the situation of global crude oil price rise, however, the price adjustments were held back by the companies, with a motive to be a helping hand to the government and curb inflation.
The oil companies had incurred losses at a great amount when the prices of crude oil were high overseas, and therefore, the current high price points of petrol and diesel are explanatory that the government is allowing the listed companies, to recover the losses faced during price hike, in accordance to the statement made by Ranen Banerjee from Economic Advisory Services.
According to the senior economist, at Kotak Mahindra Bank, Upasana Bharadwaj’s statement, there is enough space for the companies to cut out the taxes, as the oil marketing companies are in a position of recovery on petrol and diesel now, with close, to Rs 10 per litre. She further added, that in an environment with a high probable risk of global slowdown, a cut in the taxes to such an extent cannot be expected.
The statement made by Sakshi Gupta, principal Economist at HDFC Bank, suggested that there might be higher chances of a decrease in fuel prices, tentatively, in the third quarter of the fiscal year, as the oil marketing companies have seemed to cover up the losses last year.
However, she also added, that there might be chances of an increase in fuel prices in the near future as well, in context to the recent supply cuts by OPEC.
The retail prices could be lowered, once the Brent crude prices have reached down to about $70 per barrel, as per the say put forward by Banerjee.
