Petrol and diesel price cut: Consumers may soon get good news regarding the reduction in the price of petrol and diesel. According to reports, fuel prices may come down in the coming months. Oil marketing companies (OMCs) may cut petrol and diesel prices by Rs 4-5 per liter from August in view of elections in key states likely after November-December.
JM Financial Institutional Securities said in a research that in view of elections in key states in November-December, state-run oil companies may be asked to cut the price of petrol or diesel by Rs 4-5 per liter from August. The report, however, did not mention the timeline and quantum of possible cuts. It will depend on what is the price of crude oil at that time and what is the position of the rupee against the dollar.
depending on the price of crude oil
The report said that valuations of oil companies appear to be reasonable, but a sharp jump in crude oil prices during elections could pose a threat to the marketing earnings of OMCs. The strong pricing power of OPEC+ may propel the crude oil price during the next 9-12 months. Oil companies expect crude prices to remain below $80 a barrel, though this will depend on the government fully compensating for the under-recovery in FY23.
However, if Brent crude price exceeds OMC’s break-even crude price of USD 85 per barrel or there is any cut in fuel price following an increase in crude oil price, then the earnings of marketing segment of OMC are at risk. may come in, as the chances of a fuel price cut may be slim. during the election period.
increase in the price of crude oil
The report said that oil companies’ earnings could be at risk if Brent crude price exceeds OMC’s break-even crude price of USD 85 per barrel or there is any fuel price cut, as The chances of cutting fuel prices during elections are very small.
It has been said in the report that there is a possibility of increase in the price of crude oil. The report added that OPEC+ will continue to support Brent crude price at US$75-80 per bbl, which is the fiscal break-even crude price for Saudi Arabia, given their strong pricing power.
Media reports suggest that the Oil Ministry may push OMCs to cut petrol/diesel prices as OMCs’ balance sheets are largely in order and are likely to report strong profits in 1QFY24; However, the report did not mention the likely timeline and quantum of possible cut as it would depend on the level at which the crude oil price and the INR/USD exchange rate stabilize.
“Our calculations suggest that based on the current crude price/product crackdown, OMCs could potentially start selling petrol/diesel from Aug’23, given the series of elections over the next 12 months (starting from Nov-Dec). May cut prices by Rs 4-5 per litre.’23)”, the report said.
The latest IEA report paints an altogether grim picture for refiners. Motilal Oswal Financial Services said in a note that spare global refinery capacity is likely to reach 8 million bopd by CY28 amid capacity addition, easing oil demand from the transportation sector and competition from non-refined products.
China will play a key role in balancing the global refined products market as 44 per cent of upcoming capacity over the next six years and 40 per cent of global excess capacity in CY28 will be concentrated in China.
Excess supply could lead to glut of refined products in global markets which could structurally weaken refining margins in the medium term. The research says that IOCL will be most affected by the fall in GRMs due to its highest refining leverage among OMCs.
(With IANS inputs)