New Delhi, May 18: A Rs 3-per-litre increase in petrol and diesel prices has helped state-run oil marketing companies trim daily losses by nearly a quarter, reducing overall losses to around Rs 750 crore per day from Rs 1,000 crore, a senior oil ministry official said Monday.
However, elevated global crude prices and a weak rupee continue to keep pump rates below cost-recovery levels.
Government subsidy bailout package still not on table: Joint Secretary
At a news briefing, Sujata Sharma, Joint Secretary in the Ministry of Petroleum and Natural Gas, said a bailout package, in the form of a government subsidy to make up for losses state-owned oil companies are incurring on selling petrol, diesel and cooking gas LPG below cost, is "still not on the table".
International oil prices rose sharply after the US-Israeli war against Iran triggered the largest-ever oil supply disruption. To keep the domestic market insulated, the state-owned oil companies continued to sell fuel at two-year-old rates till May 15, when prices of petrol and diesel were raised by Rs 3 per litre.
Losses hit Rs 1,000 crore daily; quarterly losses wiped out yearly earnings
The increase followed daily losses, climbing to an unprecedented Rs 1,000 crore per day. The losses in a quarter rose to Rs 1 lakh crore - enough to wipe out earnings of an entire year.
There "still is Rs 750 crore a day under-recovery", Sharma said.
Rs 3 hike offers limited relief, adds modest inflation pressure
Analysts said the decision to raise petrol and diesel prices by Rs 3 per litre will provide only limited relief to state-run fuel retailers, while adding modest inflationary pressure and doing little to offset mounting losses from elevated global crude prices.
The fuel price increase - the first in more than four years - comes after a sharp rally in oil prices, following the Iran conflict disrupting flows through the Strait of Hormuz, pushing up costs for oil marketing companies (OMCs) and increasing pressure on government finances.
DBS: Hike may add 15-25 basis points to inflation"
According to Radhika Rao, Senior Economist & Executive Director, DBS Bank, higher pump prices were likely to moderate fuel demand and reduce the import burden, while estimating the increase could add 15-25 basis points to headline inflation, excluding second-round effects.
While Prashant Vasisht of Icra said the increase was insufficient to restore profitability for OMCs if crude prices remain elevated, Crisil's Sehul Bhatt described the increase as a "meaningful, if partial, step" toward reversing one of the longest under-recovery cycles in recent years.
"At their peak, oil marketing companies were absorbing losses of Rs 23-30 per litre on petrol and diesel, translating to a combined daily loss of Rs 1,300-1,400 crore," Bhatt said.
According to Crisil estimates, government excise duty relief and the latest price increase have narrowed under-recoveries to about Rs 10 per litre on petrol and Rs 13 on diesel, though cumulative losses since the start of the conflict are expected to exceed Rs 1 lakh crore by the end of May.
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