Daily Fuel Price Revisions May Improve The Margin of OMCs, Report States

India Ratings and Research’s (Ind-Ra) report states that the government decision to revise the fuel prices on a daily basis will most likely result in improvement of the marketing margin of the Oil Marketing Companies (OMC). The report further stated the move to be one of the ‘positive structural changes initiated by the government in the downstream sector.’

The other changes mentioned are the petrol deregulation of 2010, the diesel deregulation of 2014, direct benefit transfer of LPG, give-it-up scheme of LPG, lowering the allocated number of PDS kerosene, hike in the prices of kerosene and decline in crude oil prices. The diesel and petrol deregulation had also resulted in the improvement of the marketing margins of the OMCs.

The OMCs consist of Indian Oil Corporation, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation. The increase in the marketing margins for these oil companies could also result in competition from private sector owned outlets. The move taken now has reportedly resulted in lower under-recoveries, leading to the state-run oil marketers’ market borrowing rate to fall steeply.

The pilot for the daily price revision of fuels was launched in Vizag, Puducherry, Udaipur in Rajasthan, Jamshedpur in Jharkhand and Chandigarh from May 1. The report states three reasons for the possible increase. The first reason being that it lends companies a greater flexibility to pass on the crude price volatility to the end-consumers. The second reason being that it lowers the need for steep pricing, lowering the possibility of political intervention. The third reason is that it lowers the chances of hoarding by the dealers in hope of a price hike.