Massive hike in petro prices likely

​New Delhi: A Rs 4 per litre increase in petrol and diesel prices is in the offing if state-owned fuel retailers are to return to pre-Karnataka poll hiatus margin levels, brokerage firms said.

No sooner had Karnataka polled to elect a new state government, state-owned Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) on Monday ended a 19-day hiatus in revising petrol and diesel prices and reverted to the practices of changing rates on a daily basis. Since then petrol price has risen by 69 paisa a litre, including a 22 paisa hike effected on Thursday that took rate in Delhi to Rs 75.32, the highest in almost five years.

Diesel prices have gone up by 86 paisa a litre, including 22 paisa increase on Thursday that took the rate to their highest ever of Rs 66.79 a litre in Delhi. "Our computation suggests that downstream oil marketing companies (OMCs) are required to increase retail prices of diesel by a steep Rs 3.5-4 a litre and gasoline (petrol) by Rs 4-4.55 per litre in the coming weeks to earn normative gross marketing margins of Rs 2.7/litre," Kotak Institutional Equities said in a report.

The increase is based on assumption that global price of diesel and petrol and Rupee-US Dollar exchange rate remain stable hereon. "We note that the lack of price hikes over the past three weeks, before Karnataka elections amid a sharp increase in global crude/product prices, has resulted in sharp moderation in gross marketing margins to around Rs 0.5-0.7 a liter," it said. 

Last week, ICICI Securities had said that auto fuel net marketing margins were weak at Rs 0.31 a litre due to no price hike after April 24. OMCs returned to daily price revision from May 14. They are estimated to have lost about Rs 500 crore on absorbing higher cost resulting from the spike in international oil rates and fall in rupee against the US dollar.