Fuel retailers in India are grappling with diminishing profit margins as international oil prices continue to fluctuate, industry officials revealed, shedding light on the challenges behind the prolonged freeze on petrol and diesel prices.
Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL), collectively controlling the lion’s share of India’s fuel market, have refrained from adjusting petrol, diesel, and cooking gas (LPG) prices for nearly two years. This decision, described as “voluntary,” has resulted in losses during periods of high input costs and reduced profits when raw material prices were lower.
Despite recent softening in international oil prices towards the end of last year, prices surged again in January, exacerbating the predicament for fuel retailers. The industry has resisted calls to resume daily price revisions, citing the extreme volatility of oil prices and the need to recoup past losses.
Industry officials disclosed that fuel retailers are currently incurring losses of close to Rs 3 per liter on diesel, while profit margins on petrol have dwindled from low double digits to approximately Rs 3-4 per liter.
Oil Minister Hardeep Singh Puri emphasized that the government does not dictate fuel prices, affirming that pricing decisions are made by oil companies based on economic factors. He acknowledged concerns over market volatility and hinted at potential price revisions if the current trend of profitability continues into the final quarter of the fiscal year.
Despite the challenges, IOC, BPCL, and HPCL collectively reported bumper profits of Rs 69,000 crore in the first nine months of the current fiscal year, surpassing their annual earnings in the pre-oil crisis year. This turnaround follows a period of losses, particularly during the initial phase of the pandemic, when international oil prices plummeted.
The freeze on fuel prices, initiated in April 2022, resulted in significant losses for fuel retailers. However, subsequent softening of oil prices alleviated some of these losses, enabling the firms to achieve profitable margins. Nevertheless, recent fluctuations in international oil prices have reignited concerns about profitability, prompting a reassessment of pricing strategies.
The unprecedented volatility in oil markets over the past two years underscores the challenges faced by fuel retailers in navigating price dynamics while balancing consumer interests and economic viability. As the industry continues to grapple with these challenges, stakeholders are closely monitoring market trends and regulatory developments to ensure stability and sustainability in fuel pricing mechanisms.
