Improved Fuel Margins May Lead To Rs 2-3 Per Litre Price Cut, Says ICRA

Healthy marketing margins on auto fuels could spur price reductions of Rs 2-3 per litre, provided crude prices remain stable, according to a report released by ICRA on Thursday. Marketing margins for retail fuel sales have improved in recent weeks, owing to a sharp drop in crude prices, which is attributed to weak demand from China and muted global economic growth.

The Organization of the Petroleum Exporting Countries has pushed the rollback of its production cuts by two months to combat the declining prices.

Additionally, Singapore's gross refining margins fell in the first half of fiscal 2025, due to a drop in crack spreads with higher product output and reduced demand, particularly from China, where rising electric vehicle sales, lower industrial demand, and a real estate slump have compressed fuel demand, the rating agency said.

ICRA estimates that oil marketing companies' net realisation is higher by around Rs 15 per litre for petrol and Rs 12 per litre more for diesel, than international prices as of mid-September 2024 (till Sept. 17). If crude prices remain stable, fuel retail prices could be lowered.

A marketing gain of Re 1 per litre on petrol and diesel could offset a gross refining margin loss of $0.9 per barrel for the domestic refining and marketing industry, the report further stated, the report said, adding that high marketing margins would benefit OMCs and would compensate for the decline in GRMs, but the profitability for standalone refiners would be adversely impacted by the decline.

The operating margins of OMCs for first half of fiscal 2025 are likely to remain healthy, due to higher marketing margins despite moderation in GRMs and inventory losses due to crude price decline, according to ICRA.