Petrol-Diesel Prices / Relief of Rs 2 will give a blow to petroleum companies worth Rs 30 thousand crores

Zoom News : Mar 17, 2024, 08:20 AM

Petrol-Diesel Prices: Recently, government oil companies have given a relief of two rupees per liter to the people of the country on the price of petrol and diesel. Due to this relief, the earnings of these companies are going to be greatly affected. According to a report, there may be a big annual decline in the joint revenue and Ebitda of the three government companies. The government had announced price cuts from March 15, a few days before the announcement of general election dates. Let us tell you that in the first three quarters of the current financial year, OMC has made a profit of Rs 69 thousand crores.

Estimated loss of Rs 30 thousand crores

JP Morgan has said in the report of March 15 that even though the relief given by the government oil companies is very small, its impact will be quite big annually. Especially on the revenue and EBITDA of companies. According to the report, the Rs 2 per liter cut will result in an annual revenue/EBITDA loss for OMCs of around Rs 30,000 crore ($3.7 billion). This means that oil companies are not going to make supersonic profits in the coming year.

Government oil companies have changed the prices of petrol and diesel for the first time after almost two years. Earlier, on April 6, 2022, the prices of petrol and diesel were updated by the companies. Despite huge volatility in global oil prices due to Russia-Ukraine war and unrest in West Asia, pump prices in India have remained stable.

How the cheap petrol platform was prepared

OMCs have posted record profits in the last few quarters on the back of deeply discounted Russian crude and good refining margins. Due to which a platform was created to reduce fuel prices. According to Commerce and Industry Ministry data, the discount available to Indian refiners on Russian crude has declined from a high of $15 a barrel to around $2 a barrel. This happened because the proportion of Russian oil imports has increased.

Despite waste sanctions and low discounts on crude oil, Russia has remained India's top crude oil supplier for more than one and a half years. JP Morgan said OMCs are showing strong profits, well ahead of consensus expectations for FY2025. If there had been no reduction in the prices of petrol and diesel, this profit could have increased even more. Due to cut in retail prices and decline in Russian discount, profit prospects have now suffered a major blow.

Is the relief for three months?

A senior OMC official said the companies are expecting that the fuel price cut will be effective only for the next three months and there will not be much volatility in crude oil. Oil prices hit a four-month high of $85 per barrel on Friday after the International Energy Agency (IEA) revised its 2024 oil demand forecast. The IEA said global oil demand will increase by 1.3 million barrels per day (bpd) in 2024, up 110,000 bpd from last month.

Margin will decrease

In a report, Motilal Oswal said that since there is no indication of any relief in excise duty from the central government, it appears that the burden of price cut will be borne entirely by the OMCs. They are currently pricing at a net marketing margin of Rs 1.7-2.7 per litre. The price cut means that the net marketing margin will come down to Rs 0.8-0.9 per litre. We estimate that each 0.5 per liter reduction in net marketing margin will reduce FY25E Ebitda for HPCL/BPCL/IOCL by 16%/13%/11%, respectively, Goldman Sachs said in a March 15 report.

Prices of gas cylinder and CNG also reduced

Before the reduction in the prices of petrol and diesel, a reduction of Rs 2.5 per kg was seen in the prices of CNG from the gas distribution companies of the city. Petroleum and Natural Gas Minister Hardeep Singh Puri had said last week that the full benefits of the government's measures in the gas sector have not reached the end users. On March 8, the government had reduced the prices of LPG cylinders by Rs 100 per cylinder, giving relief to the pockets of common people across the country.

Current price of crude oil

If we talk about the price of crude oil at present, then the oil of Gulf countries i.e. Brent crude is trading at $ 85.34 per barrel. In the current year, the price of Brent crude oil has seen an increase of about 11 percent. On the other hand, there has also been a rise in the price of American crude oil. At present the price of WTI is more than $ 81 per barrel. In the current year, the price of American crude oil has seen an increase of more than 13 percent.

Prices did not change for the second consecutive day

There has been no change in the prices of petrol and diesel in the four metros of the country for the second consecutive day. On March 17, the same prices will be applicable which were there on March 15 after the deduction of two rupees. Before that, the government had announced a reduction of Rs 2 in the price of petrol and diesel in the country. The special thing is that the oil marketing companies have changed the prices of petrol and diesel after April 2022. Whereas the last change seen across the country was in May 2022. That central government had reduced the tax on fuel.

Petrol becomes cheaper by Rs 15 in Lakshadweep

On the other hand, a day before, a reduction in the price of petrol and diesel by more than Rs 15 was announced in Lakshadweep. Indian Oil Corporation (IOC) has created special infrastructure to transport fuel to remote islands. The prices of petrol and diesel have come down due to the removal of additional charges applicable to recover the expenses incurred for this. Quoting information received from the IOC, the Petroleum Ministry wrote on social media platform

Petrol and diesel prices in major cities of the country