“Now, with the oil prices going above $80, it (cutting the retail petrol and diesel prices) has once again gone out of active consideration. In fact, we can bear it up to a level of $85-$90, but beyond that means losses,” said a refinery official.
The recent hike in crude oil prices to around $80 from $75 per barrel has dampened the chances of a reduction in retail fuel prices.
Oil price will have to remain below $80 for a long period before oil marketing companies (OMCs) begin passing down the benefit to consumers, industry experts said.
“Now, with the oil prices going above $80, it (cutting the retail petrol and diesel prices) has once again gone out of active consideration. In fact, we can bear it up to a level of $85-$90, but beyond that means losses,” said a refinery official.
Oil prices gained momentum in recent weeks after Saudi Arabia and Russia announced supply cuts and inflation eased in the US. The crude price has been hovering around $80 a barrel in July while the average price of Indian basket of crude oil was below $75 for the months of May and June, as per the oil ministry.
“Chances of a cut in fuel prices have been impacted. The OMCs will wait and watch how crude oil prices pan out. They are not in as comfortable a position as earlier when they were making huge margin of around Rs 12. Now, these margins will be much lower because crude oil has also moved up $7-$8,” said Prashant Vasisht, vice president and co-head of corporate ratings at ICRA.
The International Energy Agency (IEA) has predicted demand for oil to rise by 2.2 million barrels per day (mbpd) to touch a record 102.1 mbpd in 2023. The group of oil exporting countries, OPEC, is bullish on global oil demand. The increase in crude oil demand coupled with production cuts from OPEC+ countries, including Russia, is further likely to push up oil prices in the second half of 2023.
However, analysts believe the recessionary trends and the weak China growth may keep the oil price at the current levels. Even after the supply cut announcements that jacked up the oil price to above $80, it immediately corrected to around $79.
If the economy picks up and crude oil prices also rise as OPEC+ is quite active in managing supplies and the prices remain in the range of $80-$85, then there is lesser leeway for OMCs to change prices.
“It depends on how the global economy and all other factors fare in the next two quarters. Our average price for FY24 is between $70 to $90. It will be very difficult to breach that $90-mark also in the coming year because Europe and the US are going into recession,” said Vasisht.
“Ïn case there is a prolonged below $80 kind of a scenario then obviously the OMCs will at some point in time take the call to reduce prices,” he added.
Source:financialexpress.com