Good news! Petrol, diesel prices to come down soon | Here is WHY

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Good news! Petrol, diesel prices to come down soon | Here is WHY


Image Source : FILE Good news! Petrol, diesel prices to come down soon

Petrol and diesel price cut: Consumers can get good news very soon regarding the petrol and diesel price cut. As per the reports the fuel prices could be bought down in the coming months. Oil marketing companies (OMC) may cut petrol and diesel price by Rs 4-5 per litre from August in view of the key state elections likely from November-December onwards.

JM Financial Institutional Securities said in a research that in view of the elections in major states in November-December, government oil companies may be asked to cut the price of petrol or diesel by Rs 4-5 per litre from August. However, the report did not mention the timeline and quantum of possible cuts. It will depend on what is the price of crude oil at that time and what is the position of the rupee against the dollar.

Depend on price of crude oil

Oil companies’ valuations appear reasonable but a sharp jump in crude prices during elections could pose risk to OMCs marketing earnings, the report said. The strong pricing power of OPEC+ may propel the crude oil price during the next 9-12 months. Oil companies expect crude prices to remain below $80/barrel, though this will depend on the government fully offsetting the FY23 under-recoveries. 

However, OMCs marketing segment earnings could come under risk if Brent crude price jumps above OMCs break-even crude price of USD 85/barrel or if any fuel price cut is followed by rise in crude price, as reversal of fuel price cut might be unlikely during the election period.

Rise in price of crude oil

The report said marketing segment earnings could come under risk if Brent crude price jumps above OMCs break-even crude price of USD 85/barrel or if there is any cut in fuel price, the earnings of oil companies could be at risk, as the chances of fuel price cut during elections are very less. 

The report said that there is a risk of an increase in the price of crude oil. OPEC+, will continue to support Brent crude price at USD 75-80/bbl, which is the fiscal break-even crude price for Saudi Arabia, given their strong pricing power, the report said.

Media reports suggest that the oil ministry may nudge OMCs to cut petrol/diesel prices as OMCs’ balance sheet has largely got repaired and are likely to report strong profits in 1QFY24; however, the reports didn’t mention the likely timeline and quantum of possible cuts as it will depend on level at which crude price and INR/USD exchange rate stabilises.

“Our calculation suggests that OMCs can potentially cut petrol/diesel prices by Rs 4-5/ltr from August’23 onwards, based on current crude price/product cracks, given the series of elections in the next 12 months (starting November – December’23)”, the report said.

The latest IEA report presents a completely grim picture for the refiners. Spare global refinery capacity is likely to reach 8 million bopd by CY28 amid capacity additions, slowing oil demand from transportation sector and competition from non-refined products, Motilal Oswal Financial Services said in a note.

China will play a key role in balancing the global refined product market as 44 per cent of the upcoming capacity during the next six years and 40 per cent of global spare capacity in CY28 will be concentrated in China.

Oversupply may lead to a glut of refined products in global markets that may weaken refining margins structurally over the medium term. IOCL will be the most hit by declining GRMs due to its highest refining leverage among OMCs, the research said.

(With IANS inputs)

 
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