Crude oil price @ $90: Election year burden haunting petrol, diesel retailers once again
This week's sharp rise in Brent price after OPEC+ leaders Saudi Arabia and Russia announced that they would extend supply curbs through the end of the year has led to OMCs' GMM declining to negative 0.1 per litre, according to calculations done by JM Financial.
«There is a high expectation that the government may also cut petrol/diesel prices by Rs 3-5/ltr around Diwali given key state elections start from Nov-Dec '23. This cut should mostly happen via a reduction in excise duty and/or VAT given OMCs are losing on the auto-fuel marketing business at the current high crude price,» said JM Financial's oil and gas analysts Dayanand Mittal and Shivam Gupta.
They do not rule out a scenario whereby the government may nudge OMCs to cut petrol/diesel prices as their balance sheets have largely been repaired due to likely strong profits in 1HFY24.
Last week, the government reduced the price of domestic LPG by Rs 200 per cylinder for all 330 million domestic LPG consumers to give relief to the common man from the recent surge in inflation.
OMCs have not changed the retail prices of petrol and diesel for more than a year now.
«Elections are near and come what may, the government will not raise prices of diesel and petrol. More likely is the cut in prices as OMC have made good money in the last six months,» InCred Equities said in a recent report.
Historically, there has been a pause on price hikes amidst key elections but OMCs usually get back pricing freedom post elections.
Ahead of the Lok Sabha elections scheduled for May 2024, assembly elections are due in states like Mizoram, Chhattisgarh, MP, Rajasthan and Telangana in December-January.
Analysts say the marketing segment earnings of OMCs could come under risk if Brent crude
