• Fuel rates appear unaffected by costlier crude, analysts wary of price control

    State-run oil companies have raised petrol and diesel prices only marginally this week despite higher international rates, triggering a fall in shares of the big refiners amid worries that political considerations may bring back price controls in fuel prices.

    Retail fuel prices were unchanged from Monday to Wednesday, after which petrol rates were raised by 5 paise and diesel was up 9 paise per litre.

    Since Monday, crude oil prices have risen $3 to nearly $75 per barrel, which impact international fuel prices that are used as a benchmark for retail prices. Shares of Indian Oil fell 4%, Hindustan Petroleum 6% and Bharat Petroleum fell 7% on Thursday when the Sensex rose.

    Shares have fallen 12%-17% since April 10 as investors reacted to last week’s media reports that state-run companies had been asked to absorb fuel price hikes up to one rupee a litre ahead of the elections in Karnataka. A spokesperson for Indian Oil CorporationNSE 0.09 % however said they has received no directive from the government on pricing and have been freely pricing petrol and diesel.

    But investors are not convinced. “The fear that fuel subsidy might return is weighing on stocks. A series of state elections this year leading to general election next year may make it difficult for state companies to fully pass on price hikes to consumers,” said Ritesh Gupta, an analyst with Ambit. Karnataka will go to polls on May 12 while Rajasthan, Madhya Pradesh and Chhattisgarh are scheduled to hold elections by year-end.

    Analysts are concerned that the government might ask oil companies to subsidise petrol and diesel consumers although officials have denied any plan to interfere in fuel pricing.

    Local prices of petrol and diesel are based on the trailing 15-day average of international rates. These also factor in freight, exchange rate, dealer commission, excise duty and value added tax.

    The inability to raise prices affect the gross marketing margin of fuel retailers, which has come under pressure in the past week, said another analyst, asking not to be named. Petrol and diesel have been decontrolled for years but it is widely believed that the government nudges oil companies to go slow in raising prices before elections, and companies make up for the loss by rapidly increasing fuel rates after the polls. Officials, however, say prices move strictly in step with international rates.

    Share This
    Facebooktwittergoogle_pluslinkedinyoutube