:: Technical --- ID :: 17449
Net marketing margin on petrol and diesel turns negative
Net marketing margin on petrol and diesel turns negative

Net marketing margin on petrol and diesel turns negative

NEW DELHI: Net marketing margin on petrol and diesel has turned negative after soaring to a record in early May as oil marketing companies have frozen domestic fuel rates while international rates and taxes have sharply increased.

Net marketing margin is currently at minus Rs 1.56 per litre, down from Rs 16.1 per litre during May 1 to 5, according to ICICI Securities. The margin sharply contracted after the government hiked excise duty on petrol and diesel by Rs 10 and Rs 13 per litre, respectively, on May 6. For the period between May 6 and 15, the margin averaged Rs 3.9 per litre on the two fuels. Increase in taxes didn’t translate into any change in retail prices then as oil companies absorbed the full hike.

In the second fortnight of May, the margins slipped further to Rs 1.84 per litre as international prices started rising while domestic prices remained frozen. International rates of petrol and diesel have risen by 35% and 48%, respectively, in a month. On June 1, the margin on domestic fuels slipped into negative.

“Unless the retail price is hiked significantly, the net margin would be in the red in June,” ICICI Securities said in a note on Tuesday basing its estimate on current prices. A high margin of Rs 7.9 per litre in April-May would, however, more than offset negative June margin and ensure a healthy Rs 5.1 per litre margin for the April-June quarter, as per the ICICI estimates. By comparison, the average margin was Rs 2.2 per litre in the year 2019-20.

Oil companies would probably begin worrying in the next quarter if international prices keep rising and domestic fuel rates stay frozen.

“We are faced with some hard choices. Domestic fuel prices are already high and raising them further may not make sense in a slowing economy. But expecting the government to cut duties when it is short on revenue also may not be realistic,” said a state oil company executive.

On Tuesday, petrol and diesel were sold for Rs 71.26 and Rs 69.39 per litre, respectively, in Delhi. Prices have remained almost frozen for more than two months, which oil company executives say is aimed at shielding consumers from volatility. By abandoning daily revision of prices, a practice they adopted three years ago, oil companies also denied consumers the benefit of the recent oil crash.

The Economic Times 02-06-2020