Fuel prices: OMCs reap huge gains as consumers still wait for relief

Despite falling crude prices and record profits, consumers are still waiting for meaningful reductions in fuel prices, even as oil marketing companies are reaping huge benefits.

In Short

• OMCs profit rise as consumers await petrol, diesel price cuts
• Crude price drop boosts OMC profits, fuels inflation concerns
• State-run OMCs earn big, fuel prices stay high for consumers

Indian oil marketing companies are seeing a sharp rise in profits as crude oil prices drop, but consumers continue to wait for noticeable cuts in petrol and diesel prices. While household budgets are already strained by rising food and essential costs, fuel prices have remained unchanged since earlier this year.

Major state-owned companies such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) are currently earning significant profits—Rs 15 per litre on petrol and Rs 12 per litre on diesel—thanks to the drop in crude prices, according to a recent report by ICRA.

Girishkumar Kadam, Senior Vice President and Group Head - Corporate Ratings at ICRA, said, “ICRA estimates that the OMCs' net realisation was higher by Rs 15/litre for petrol and Rs 12/litre for diesel compared to international product prices in September 2024 (up to September 17). The retail selling prices of these fuels have remained unchanged since March 2024.”

A minor reduction of Rs 2/litre was implemented on both petrol and diesel on March 15, 2024.

The report highlights that recent reductions in crude oil prices have improved marketing margins for Indian OMCs. Despite this, fuel prices in India remain elevated, with petrol still exceeding Rs 100 per litre in many states and diesel hovering above Rs 90 per litre.

These persistent high prices directly impact inflation across various sectors, from transportation to aviation, and even daily essentials like cooking.

ICRA had earlier suggested that there is room for OMCs to cut petrol and diesel prices by Rs 2-3 per litre.

The financial performance of OMCs for FY 2023-24 has been remarkable, with combined profits reaching Rs 86,000 crore—25 times higher than the previous fiscal year.

HPCL reported a record net profit of Rs 16,014 crore, a stark contrast to its loss of Rs 6,980 crore in FY 2022-23. BPCL’s profit after tax soared to Rs 26,673 crore, nearly 13 times higher than the prior year.

Despite these stellar financial results, consumers have yet to see any significant reductions in fuel prices.

Experts suggest that OMCs now have an opportunity to lower prices, potentially offering relief ahead of upcoming state elections in Maharashtra and Haryana.

The price of crude oil significantly impacts the profitability of fuel retailers, particularly OMCs that control about 90% of India’s fuel retail market.

As global crude prices have fallen, these companies have widened their marketing margins. ICRA's report indicates that marketing margins for OMCs have improved considerably due to this dip in crude prices.

Earlier this month, Pankaj Jain, Secretary at the Ministry of Petroleum and Natural Gas, mentioned that price reductions could be considered if crude oil prices remain low for an extended period.

However, public skepticism persists; previous declines in global oil prices did not lead to meaningful cuts in domestic fuel prices.