While Fuel Hike brings some relief, Oil PSUs continue to lose ₹600 Crore every day.

While the losses of the state-run oil marketing companies have been reduced with the latest increase in fuel prices, the losses are still estimated to be around ₹600 crore a day on selling petrol and diesel. The slight rise in retail prices is less under-recovery than during the past few weeks. But given the unchanged duties and still high crude price this is just part of the equation to reduce the cost to selling price.

The increases will push up the price of fuel for consumers and will also likely be passed on to transport and inflation-sensitive goods. It's a bit of a reprieve, though not a complete reset, for oil PSUs.  

How Fuel Price Hikes Help Oil Companies.How Fuel Price Hikes Help Oil Companies.  

Oil Companies have been recovering more of their true cost for supplying them in the form of petrol and diesel as an increase has been made in their pump prices. This will help to lower the under-recoveries, which were higher in the past, and thus improve the cash flow situation and decrease the need to take out short-term loans. The incremental price adjustment will slow down the increase in losses on their books, while they are still trading below import-parity prices on some products.  

Why is it that losses remain high?  

Even with the rise the retail prices are still below the theoretical levels due to the slowdown in crude prices, the refining margins, freight, marketing costs and taxes. If there are no changes in the excise duty and VAT frameworks, companies of the oil marketing companies are bearing a portion of the burden to keep the inflation in check. Consequently, even with their latest revision, they continue to operate at a loss with respect to key fuels, on a day-to-day basis.  

For consumers, what does all this mean?For consumers, what does all this imply?  

This will be felt by consumers through increased transport and logistics expenses and with a delayed effect on prices of goods and services. Policymakers have to balance the interests of both households and PSUs, while also controlling inflation. Additional measures include gradual price adjustments, specific assistance, and even limited measures of taxation in the event of a sustained high price of oil in the world market.  

Fuel Price And PSU Loss Highlights  

• Though the fuel price hikes have eased, the under-recovery of PSU oil has not stopped.  
• Losses continue to be estimated to be about ₹600 crore per day on petrol and diesel.  
• Pump prices are marginally alleviating cash flow and borrowing pressures  
• Consumers will have to pay significantly more for their fuel bills and may even experience inflation pass through.  
• Continued focus on balancing inflationary pressures with financial health of PSUs  

The government and market discussions on the revision of fuel prices over the past few days and estimates of under-recoveries by the oil marketing companies and their effect on the fuel price dynamics and inflation trends in the country were cited as sources.

Sources: Recent government and market commentary on fuel price revisions, estimated under-recoveries of oil marketing companies and the impact of global crude trends on India’s fuel pricing and inflation dynamics