Indian Oil, BPCL, HPCL stop taking margin hit on petrol, diesel sales

  • State-run oil marketing companies (OMCs) Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) have stopped absorbing the government-mandated cut of INR1 per litre on sales of petrol and diesel following an over 36% fall in global crude oil prices in the last three months, said two senior OMC officials, requesting anonymity.
  • This means that Indian Oil, BPCL and HPCL will not be passing on all the benefits of the drop in crude oil prices to consumers at the petrol pump.
  • On 4 Oct 18, the centre had directed the OMCs to absorb a petrol and diesel price cut of INR1 a litre, which according to estimates, would have led to a collective hit of INR90bn on margins over two quarters.
  • Retail prices of petrol and diesel in India are linked to their prices in global markets and not that of crude. Despite that, crude oil, which accounts for about 90% of the cost of these refinery products, is the biggest determinant of the retail price of fuel.
  • “Retail prices do not move in tandem with crude oil price. OMCs have to contain volatility. So we only take a gradual price increase or decrease,” said the second official mentioned above.
  • In Jun 17, the OMCs switched from a fortnightly pricing system to daily price revision as the government sought to initiate more reforms with regard to pricing in the sector when prices remained subdued.
  • “When we lose marketing margin on fuel sales, we account for that. When crude slides, it gives us an opportunity to recover the losses made while selling fuel below the market price,” said the first official.

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