Petrol and diesel prices need a massive price hike of up to ₹15.1 per litre by March 16 after being frozen for an unprecedented 120 days, estimates a recent analyst report. The recommended price hike takes into consideration dismal margins of Indian oil marketing companies, which nosedived as crude oil prices reached new highs on the back of ongoing geopolitical tensions between Russia and Ukraine.

A report by ICICI Securities projects that oil marketing companies need to hike prices of transportation fuels by ₹12.1 per litre on or before March 16 just to break even, and ₹15.1 litre to manage a net margin of ₹2.5 per litre.

“We believe steep price hikes are required as the strength in gross refining margin (GRM) does not suffice for sharp QoQ fall in net auto fuel marketing margin,” the report states.

International oil prices, which are directly followed by domestic petrol and diesel prices, have been on the rise for the past two months. As per Petroleum Planning and Analysis Cell (PPAC) of the oil ministry, the basket of crude oil India buys rose to ₹117.39 per barrel on March 3, the highest since 2012. The average price for the same in early November last year stood at ₹81.5 per barrel, when the prices of petrol and diesel were frozen.

Keeping the prices unchanged, as five states – including Uttar Pradesh and Punjab – went to polls, has severely hurt the margins of oil marketing companies (OMCs) and the situation is set to further deteriorate, the ICICI Securities report suggests.

As per the report, auto fuel net marketing margin stood at minus ₹4.92 per litre on March 3 and ₹1.61 per litre in Q4 FY22-to-date. However, at latest international auto fuel prices, net margin is expected to plummet to minus ₹10.1per litre by March 16 and minus ₹12.6 a litre on April 1.

Assuming international prices remain unchanged, net auto fuel marketing margin is likely steeply decline to be ₹1.9 per litre in FY22, compared to ₹2.7 per litre in FY22 to-date, and minus ₹1.3 per litre in Q4 FY22E, against ₹1.6 per litre in Q4 FY22 to date.

Crude oil prices have been rising since Russia stationed its forces on the Ukraine border last month. The uptick quickened after the oil producing nation invaded its neighbour on fears of supplies from Russia being disrupted due to its conflict with Ukraine or the subsequent sanctions by western countries.

Russia accounts for a third of Europe’s natural gas supply and 10% of global oil production. About one-third of Russia’s gas supplies to Europe usually travel through pipelines crossing Ukraine.

But India doesn’t rank among major importers of Russian oil. India imported 43,400 barrels of oil from Russia in 2021, around 1% of its overall oil imports. Coal imports from Russia to India in 2021 stood at 1.8 million tonnes, making up 1.3% of all coal imports. India also buys 2.5 million tonnes of LNG from Russia’s Gazprom.

While supplies from Russia are not a concern for India, the steep rise in oil prices due to the Russia-Ukraine war has stirred troubles for oil companies at home. Oil prices, benchmarked to the international crude oil prices, have not been changed for the past four months even as the latter continues to race ahead. Petrol and diesel prices are supposed to be revised daily to replicate the changes in crude prices, but government-owned Indian fuel retailers – Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) – had frozen rates as campaigning for assembly elections in five Indian states began.

Analysts have been expecting daily price revisions to come back from next week as assembly polls end.

The central government had to reduce excise duty on petrol and diesel late last year. Several states had also reduced the VAT rates on transportation fuels. The relief was given as both petrol and diesel reached new peaks – going beyond ₹100-per-litre mark in several states – due to rise in Brent crude prices. As things stand, an encore seems unlikely.

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