New Delhi, May 15 (PTI) The decision to raise petrol and diesel prices by Rs 3 per litre will provide only limited relief to state-run fuel retailers, while adding modest inflationary pressure and doing little to offset mounting losses from elevated global crude prices, analysts said on Friday.
The fuel price increase - the first in more than four years - comes after a sharp rally in oil prices following the Iran conflict disrupting flows through the Strait of Hormuz, pushing up costs for oil marketing companies (OMCs) and increasing pressure on government finances.
Radhika Rao, Senior Economist & Executive Director, DBS Bank said the move had been widely expected given the surge in crude prices and the financial strain on refiners.
"This was a long-anticipated move in light of the sharp rally in global crude prices and rising burden of these costs on domestic oil marketing companies as well as the fiscal books," Rao said.
She added that higher pump prices were likely to moderate fuel demand and reduce the import burden, while estimating the increase could add 15-25 basis points to headline inflation, excluding second-round effects.
Retracing the steps back in 2022, authorities had raised the retail pump prices in two steps cumulatively by around 9-10 per cent , before acting on excise duties and windfall taxes, which nearly neutralised the overall fiscal impact.
Prashant Vasisht of Icra said the increase was insufficient to restore profitability for OMCs if crude prices remain elevated.
"The modest hike in retail price of Rs 3 per litre for petrol and diesel provides limited relief to the oil marketing companies," Vasisht said.
Icra estimates that with crude prices at USD 105-110 per barrel, OMCs continue to incur losses of around Rs 500 crore daily on sales of auto fuels and domestic LPG even after the fuel price increase, he added.
Crisil's Sehul Bhatt described the increase as a "meaningful, if partial, step" toward reversing one of the longest under-recovery cycles in recent years.
"At their peak, oil marketing companies were absorbing losses of Rs 23-30 per litre on petrol and diesel, translating to a combined daily loss of Rs 1,300-1,400 crore," Bhatt said.
According to Crisil estimates, government excise duty relief and the latest price increase have narrowed under-recoveries to about Rs 10 per litre on petrol and Rs 13 on diesel, though cumulative losses since the start of the conflict are expected to exceed Rs 1 lakh crore by the end of May.
"The latest price increase is, therefore, aimed at containing incremental balance sheet stress rather than restoring marketing margins," Bhatt added.
Analysts at Equirus said the diesel price hike would have only a limited impact on cement producers, estimating an increase of about Rs 10 per tonne in logistics costs.
"The recent diesel price hike is not expected to materially impact sector profitability in the near term," Equirus said, adding that broader cost pressures from fuel and packaging remained the larger margin concern for the industry.