Moneycontrol | OMCs need more time to recover losses before they cut petrol, and diesel prices: Oil Minister Puri

Sep 09,2022

Indian oil marketing companies (OMCs) are unlikely to cut retail prices of petrol and diesel despite a sharp correction in crude oil prices.

Minister of Petroleum and Natural Gas Hardeep Singh Puri said that the OMCs need more time to recover their losses when he was questioned whether the retail price of fuel can come down in view of the falling crude prices in the last one week.

Puri was talking at a media event on September 9 for the signing of contracts for 31 Discovered Small Fields (DSF) blocks under DSF bid round-III and 4 CBM blocks under CBM bid round-V awarded to 14 E&P domestic companies.

Benchmark Brent crude oil prices have declined to under $90 a barrel from around $110 levels in end-July.

OMCs did not increase the retail price of petrol and diesel in line with the steep increase in crude oil prices earlier. They typically revise retail petrol and diesel prices daily, based on the rolling average of international benchmark prices over the past 15 days.

While they increased prices of fuel sold to bulk consumers and aviation turbine fuel in line with the sharp rise in crude oil prices, retail prices of petrol and diesel were left unchanged for almost 137 days until March 22 at a time when crude oil prices were soaring.

Even though the prices have been revised since March 22, the OMCs have incurred huge losses in the first two quarters of 2022-23 on retail sales of fuel.

Puri, back from Gastech 2022 in Milan, said the oil and gas price crisis is far worse in Europe and other developed economies. India has taken several measures to minimise and mitigate the volatility of global crude oil and gas prices, he argued.

"Fuel price rise in India has been contained in comparison to exponential rise in developed countries. Most of the developed nations have witnessed a significant rise in gasoline prices by almost 40 per cent during July 2021 to August 2022, while in India, gasoline price has reduced by 2.12 per cent," he said.

However, he also stressed that if crude prices continue to rise, the world economy will fall into recession.

Puri added that there is no need for caps for oil imports from Russia as India's crude oil import from Russia was very low.

Puri pointed out that Russian oil accounted for only 0.2 percent of India's total oil imports in the fiscal year period ending on March 31, 2022.

The bulk of India's crude oil purchase is from Saudi Arabia, the United Arab Emirates (UAE), Iraq and Kuwait, Puri noted.

On September 7, Puri had said that India will buy oil from Russia if required, as the government has a "moral duty" to safeguard the interests of the citizens.

"We will buy (oil) from Russia. We will buy from wherever...I have a moral duty to my consumer. Does a democratically elected government want a situation where the petroleum pumps run dry? Look at what is happening in countries around India," Puri said, while speaking to CNBC in Milan, on the sidelines of the Gastech Conference.

The proposed price cap on Russian oil was announced by G7 finance ministers on September 2. In a statement issued by Germany, which chairs the G7 this year, the ministers said they “confirm our joint political intention to finalize and implement a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products globally.”

Pankaj Jain, secretary, Ministry of Petroleum and Natural Gas added that airlines are in discussion with oil marketing companies to come out with a new mechanism to determine aviation turbine fuel.

"Meetings are scheduled between airlines and OMCs in next few weeks," Jain said.

Domestic airlines in India are hoping to soon have a new mechanism to price ATF for domestic airlines which will bring more parity between global crude price and ATF price in India.

As part of the new proposed pricing policy, OMCs in India are expected to shift to the MOPAG (Mean of Platts Arab Gulf)-based pricing system instead of the prevailing dual pricing mechanism to determine ATF prices.

The new mechanism is also expected to help airlines predict ATF price movement based on international prices and help them be better prepared in case global crude prices rise.