Rs 3-5/L fuel price cut likely

Following the recent cut in domestic LPG prices, the Central government may cut petrol, diesel price by Rs3-5 a litre around Diwali given that key state elections start from November-December, JM Financial Institutional Securities said in a report.

Last week, the government cut the price of the domestic 14.2kg LPG cylinder by Rs 200/LPG cylinder for all 330 million consumers w.e.f. August 30.This was to give relief to the common man from the recent surge in inflation.

OMCs marketing segment earnings could come under risk if: a) Brent crude price sustains above $85/bbl; and/or b) OMCs are forced to cut petrol/diesel price in the next few months, the report said.

The burden of this LPG price cut will be borne by the government.However, this may increase OMCs’ working capital given the usual lag in government compensation. Further, there is high expectation that government may also cut petrol/diesel price by Rs3-5/litre around Diwali given key state elections start from November-December. This cut should mostly happen via reduction in excise duty and/or VAT given OMCs are losing on the auto-fuel marketing business at the current high crude price, the report said.

However, we cannot rule out a scenario whereby the government may nudge OMCs to cut petrol/diesel prices as their balance sheets have largely got repaired due to likely strong profits in 1HFY24, the report added.