Petrol And Diesel Prices Could See A Cut After October 5

Petrol and diesel prices may be reduced for the first time since March 2024 after Oct. 5, according to CLSA. This speculation follows comments from India's Oil Secretary, Pankaj Jain, suggesting a price drop last month and media reports indicating that the Maharashtra's state elections are expected in early November, with final dates likely announced by mid-October.

CLSA notes that Maharashtra is a crucial battleground, and the BJP-led alliance may consider lowering fuel prices as a populist move.

CLSA also believes that the government may also raise excise duty on petrol and diesel, along with any retail fuel price cut. Excise duty is a type of indirect tax levied on the manufacture or production of goods within a country. In the context of petrol and diesel, excise duty is a tax imposed by the central government on the production or sale of these fuels within India.

Currently the central government levies an excise duty of Rs 19.8 and Rs 15.8 per liter on petrol and diesel, respectively. These duties stand 40% and 50% lower compared to their peak levels in 2021. This duty was last cut when oil prices were above $100 per barrel.

As per the brokerage, brent crude prices have cooled off below $75 per barrel, despite OPEC's proactive steps to keep prices hike. CLSA notes that the government may opportunistically raise excise duty.

The potential hike in excise duties stands very positive for the Indian government. As per CLSA, every 1 rupee duty hike on diesel and petrol, would lead to an additional government annual collection of Rs 16500 crore and Rs 5600 crore, respectively.

Early September saw a sharp cool of in oil prices, which stood positive for oil marketing companies like Indian Oil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation. As per CLSA, the companies' marketing margins have shot up to Rs 13 per liter for diesel and Rs 10 per liter for petrol.

But the brokerage does note caution. A potential retail fuel price cut, along with a hike in excise duty makes these oil marketing companies vulnerable.

Assuming the government cuts diesel and petrol prices by Rs 1 and Rs 1 per liter, along with a excise price duty hike of the same price, any rise in oil prices from the current $75 per barrel level to above $80-85, could limit the pricing freedom of the companies.

Currently prices of compressed natural gas (CNG) stand lower to that of petrol and diesel.

If retail prices of petrol and diesel are hiked by Rs 2-3 per liter, then the CNG prices would still be at a 25% discount to the other fuels. This would not impact the prospects of city gas distribution companies like Indraprastha Gas and Mahanagar Gas, states CLSA.

However, any price cut above Rs 5 per liter would reduce the pricing power of the companies. A cut above this level would take CNG's discounts compared to petrol and diesel to nearly 20%, which stands negative for Indraprastha Gas and Mahanagar Gas.