Oil companies have headroom to cut petrol, diesel prices by Rs2-3/litre: ICRA

New Delhi: Petrol and diesel prices can be reduced by Rs 2-3 per litre as decline in crude oil price in the international markets have boosted profit margins of the oil marketing companies, rating agency ICRA said on Thursday.

According to the rating agency’s estimates, oil marketing companies’ net realisation was higher by Rs 15 per litre for petrol and Rs 12 per litre for diesel vis-à-vis international product prices in September 2024 (till September 17).

“The retail selling price of these fuels have been unchanged since March 2024 (Rs 2/litre was reduced on petrol and diesel on March 15, 2024) and there appears to be headroom for their downward revision by Rs 2-3/litre, if crude prices remain stable,” said Girishkumar Kadam, Senior Vice President and Group Head - Corporate Ratings, ICRA.

Crude prices have witnessed a sharp decline in the last few months, primarily due to weak global economic growth and high production in the US and OPEC+ countries. Crude prices in the international markets averaged $74 per barrel in September as against $83-84 a barrel recorded in March when petrol and diesel prices were last cut by Rs 2 per litre.

According to CLSA, the recent decline in crude oil price has boosted oil marketing companies’ margins to multi-quarter highs. The brokerage firm has said that the central government may push for a cut in petrol and diesel prices before the Maharashtra assembly election.

Petroleum secretary Pankaj Jain recently said that the oil marketing companies would consider reducing petrol and diesel prices if the price of crude oil remains low for an extended period.

The government-run Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum dominate oil marketing business in the country. These three firms together control around 90 per centof India’s retail oil markets.

Commenting on the OMCs’ profitability, Kadam said, “the OMCs reported healthy operating margins in FY2024, recouping the losses incurred during FY2023. Despite moderation in the GRMs (gross refining margins), the improvement in marketing margins is likely to result in the OMCs maintaining their profitability in H1 FY2025”.

However, inventory losses due to a sharp decline in crude prices could impact profitability to an extent in Q2 FY2025. Further, the profitability for standalone refiners would take a hit with the declining GRMs, he added.

According to ICRA, the growth in petroleum, oil & lubricants consumption in India is likely to decline to 3-4 per cent in the current financial year from 5 per cent recorded in 2023-24.