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BPCL raises petrol price by `2.95/litre
State-run oil marketing companies (OMCs) have decided to increase the price of petrol by
around `2.95/litre to pass on the impact of rising crude prices, which touched
US $90/barrel this week. To start with, BPCL has increased the price by `2.95/litre,
effective Tuesday midnight, while IOC and HPCL will follow the suit later this week. This
will be the second-steepest increase in petrol prices in this calendar year and the sixth
increase in this financial year so far. The current under recovery on petrol is around
`4/litre. Even after this increase, BPCL will be left with loss of about `1/litre. The
government controls pump prices of diesel. Petrol prices were last raised about a month
ago, but diesel rates have not been changed since June 26, although the cost of crude oil
has increased 18%, putting severe strains on the finances of oil companies as diesel
accounts for about one-third of all oil products sold in the country.
A similar rise in diesel rates is likely to be considered by an EGoM headed by Finance
Minister Pranab Mukherjee later this month. Petrol pricing was decontrolled with effect
from June 25 in accordance with the suggestion made by the Kirit Parikh Committee. The
Indian basket of crude oil averaged around US $88.47/barrel in December, up by 5%
from the November average of US $84.26/barrel, when the last increase in petrol prices
by `0.32/litre came. Currently, OMCs are incurring under recovery of `4.11/litre on
diesel, `16.88/litre on kerosene and `272/cylinder on domestic LPG. Based on increased
crude oil price, they are expected to incur revenue loss of `65,000cr in the current financial
year on the sale of diesel, domestic LPG and kerosene, up over 22% from the earlier
estimate of `53,000cr. The fuel price hike is important to lift the finances of IOC and
ONGC (both of which share the subsidy burden with the government before their
`20,000cr equity issue). Thus, the move to hike petrol price is in line with expectation;
however, further boost will come only when diesel price is also hiked as under recoveries
are mounting. We maintain Accumulate on ONGC with a Target Price of `1,391.
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