Several OMC officials and executives with whom FE spoke said the government could wait another two weeks before making a decision on retail fuel tariffs given the volatile geopolitical situation and the threat it poses to macroeconomic indicators.

Even as the three public oil marketing companies (OMCs) under-recovered from automotive fuel retail sales have risen steadily since the virtual price freeze on November 4 last year, and they are staring at significant losses in the March quarter, these companies may don’t rush to raise prices. Although the parliamentary elections for five states believed to have triggered the price freeze are over, rising inflation may not prompt the government to make its tacit nod to the OMCs to adjust retail rates to their rising costs.

Several OMC officials and executives with whom FE spoke said the government could wait another two weeks before making a decision on retail fuel tariffs given the volatile geopolitical situation and the threat it poses to macroeconomic indicators.

While retail fuel prices remained unchanged, fuel and light inflation, as measured by the consumer price index (CPI), remained high at 8.73% in February. Retail inflation peaked at an eight-month high of 6.07% in February, reaching the upper end of the Reserve Bank of India’s (RBI) medium-term target of 2-6% for the second straight month.

The wholesale price index (WPI) for fuel and power, which remained at 31.50% in February, clearly shows that if retail rates were in sync with the rise in India’s crude oil basket, retail fuel inflation would have been much higher. higher, pushing overall inflation to even higher levels. While gasoline and diesel prices were on hold, the February retail inflation data naturally showed an increase in naphtha, heating oil and ATF prices.

Of course, inventory gains and relatively high refining margins helped the OMCs absorb the under-collections from retail sales to some extent, but these gains are quickly dwindling. The wave of economic sanctions against Russia by the US and its Western allies has led to supply shocks and global inflationary pressures.

“Given the way the crisis in Ukraine is unfolding, its course is unpredictable. The whole scenario could suddenly improve and prices could even go back to pre-war levels. So there is every possibility that the government will wait for things to improve rather than opt for a knee-jerk response,” said a top OMC official.

Another official said the government would indeed weigh the inflation risks associated with the increase in auto fuel prices. The government, he said, was apparently waiting for solutions in the form of a ceasefire, an increase in OPEC+-led production or an easing of sanctions against Iran, he added.

“I believe that as the geopolitical situation eases, one can expect crude oil prices to weaken and stabilize at around $100 barrels. While the price increases are still needed, they should be less steep and more manageable from a macro perspective. -economic point of view,” said R Ramachandran, former director of refineries at BPCL.

The inability of OMCs to pass on costs reflects their lack of autonomy, said a Mumbai-based analyst, who will not be identified, adding that if the situation continues, OMCs valuation multiples could return to the levels when fuel prices were lowered. formally regulated.

Probal Sen, oil and gas analyst with ICICI securities, said that assuming normal volume run rates, the three state-run OMCs could incur a combined EBITDA loss of Rs 9,200 crore from these two fuels for the current quarter. . The OMCs under marketing margin recovery over the past 15 days were Rs 10-12 per litre.

However, benchmark gross refining margins (GRMs) have recovered strongly quarter-over-quarter, benefiting OMCs.

“Given sharply higher crude oil prices, inventory gains could reach $12-15/bbl for the quarter, hence the reported GRMS for IOCL/BPCL/HPCL is 30-50% higher qoq from Q3FY22 actuals of $ Could be 9.7/12/6.4. per bbl respectively,” Sen said.

This post Fuel price rise: government can wait while the geopolitical situation is still unfolding

was original published at “https://www.financialexpress.com/market/fuel-price-hike-govt-may-bide-time-as-geopolitical-situation-still-unfolding/2462318/”