- Government may allow fuel price hike soon.
- Rising crude oil prices put OMCs under pressure.
- OMCs absorbing losses as under-recoveries continue.
After weeks of speculation around a potential fuel price hike, repeatedly denied by the government, a fresh report has revived concerns that petrol and diesel prices may soon be revised upward.
Multiple reports in recent weeks had suggested that rising crude oil prices could force an increase in retail fuel prices. However, the government consistently dismissed such claims, maintaining that there were no immediate plans to raise petrol and diesel rates.
Now, according to a Moneycontrol report citing a senior government official, discussions are underway to allow oil marketing companies (OMCs) to pass on higher costs to consumers, indicating that a price hike may be imminent.
Mounting Pressure From Rising Crude Prices
The reconsideration comes against the backdrop of a sustained surge in global crude oil prices. Since the onset of the conflict in West Asia, crude has climbed past the $100 per barrel mark and has remained elevated for nearly two months.
Prior to the escalation, crude prices were trading at around $70 per barrel, highlighting the sharp rise in input costs for fuel retailers.
This prolonged period of high crude prices has significantly strained OMC finances, as retail fuel prices have remained unchanged.
OMCs Absorbing Losses As Under-Recoveries Rise
State-run fuel retailers have been bearing the brunt of this price freeze, leading to widening under-recoveries on petrol, diesel and LPG sales.
The report noted that OMCs are facing mounting losses and are in continuous discussions with the Petroleum and Finance Ministries regarding a possible price revision.
Earlier, Petroleum and Natural Gas Minister Hardeep Singh Puri had indicated that OMCs were incurring losses of about Rs 24 per litre on petrol and Rs 30 per litre on diesel, as prices remained unchanged despite crude crossing $100 per barrel.
These losses have persisted over the past two months, increasing pressure on the government to revisit its stance.
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Policy Shift Signals Possible Change In Pricing Strategy
The latest developments suggest a shift in the government’s approach.
While earlier statements ruled out any immediate hike, the current discussions indicate that authorities may now be preparing to gradually pass on rising costs to consumers.
The decision appears to be driven by the need to balance fiscal pressures on OMCs with broader economic considerations, including inflation.
Private Retailers Already Adjusting
In contrast to public sector companies, some private fuel retailers have already raised prices in recent weeks to offset higher crude costs.
This divergence underscores the growing strain within the fuel pricing system, where market-linked mechanisms are influenced by policy interventions.
Analysts Warn Of Sharp Price Increase
Market analysts have flagged the likelihood of a significant upward revision once policy constraints ease.
Kotak Institutional Equities had earlier warned that petrol and diesel prices could rise sharply after the ongoing Assembly elections, estimating a potential increase of Rs 25-28 per litre.
The brokerage also highlighted a widening gap between crude futures and physical markets, pointing to persistent supply stress and limited chances of near-term relief.
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What It Means For Consumers
Any increase in petrol and diesel prices would have a direct impact on household budgets, as well as transportation and logistics costs. Higher fuel prices typically feed into broader inflation, affecting the cost of goods and services across sectors.
The timing of any price revision will therefore be closely watched, particularly in the context of inflation trends and economic recovery.
