International crude oil prices, the key input for petrol and diesel production, recently hit a three-year low before making a slight recovery. However, a reduction in domestic petrol and diesel rates is unlikely unless the lower prices are sustained, according to industry sources and officials.
Brent crude futures, a global oil benchmark, dropped below $70 per barrel on Tuesday, a level not seen since December 2021. Prices rebounded slightly after Hurricane Francine affected oil supplies from the Gulf of Mexico, with Brent rising to over $71 a barrel on Thursday. West Texas Intermediate crude followed, trading near $68.
In India, petrol and diesel prices have been frozen for over two years, except for a pre-election reduction earlier this year. Oil companies may adjust prices only if the declining trend in crude oil persists.
Oil Secretary Pankaj Jain, speaking at an event, noted that oil companies will make appropriate decisions on reducing fuel prices if global oil rates stabilise at lower levels.
Industry insiders say that while the three state-owned fuel retailers—Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL)—are currently profiting from petrol and diesel sales, they prefer to wait for a stable trend before making any cuts. "They don’t want to reduce prices only to face a surge in international rates later," one official explained.
A report by brokerage firm Emkay Global Financial Services suggested that petrol and diesel prices could be reduced before elections in Maharashtra.
"We expect a potential cut of Rs 2 per litre for both petrol and diesel before the election’s model code of conduct comes into effect, possibly accompanied by a corresponding increase in excise duty," the report stated.
The cuts could occur around Diwali, once the model code of conduct for upcoming elections in Jammu & Kashmir and Haryana is lifted.
Meanwhile, oil marketing companies are expected to earn significant marketing margins in the coming months. Emkay estimates that margins for July-September will reach Rs 9.7 per litre for petrol and Rs 8 for diesel, up from Rs 4.7 and Rs 3.8 in the first quarter of this fiscal year.
India, which imports 85 per cent of its oil needs, indexes its fuel prices to international crude oil rates. Though oil marketing companies have pricing freedom, they have not revised prices in line with costs since late 2021.
After freezing prices in April 2022, they reduced rates by Rs 2 per litre before the general elections, only to freeze them again. Currently, petrol costs Rs 94.72 per litre in Delhi, while diesel is priced at Rs 87.62 per litre.
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