For the first time since 2021, Brent crude futures have dropped below $70 per barrel, bringing a ray of hope for the common man in India who has been burdened by high diesel and petrol prices. Several factors contribute to the anticipation of a reduction in fuel prices, including the upcoming elections in Haryana and Jammu & Kashmir, lower global crude prices, and oil companies turning profitable.
Key Developments:
- Brent Crude Prices Dip Below $70: According to the Bloomberg Energy Index, the price of Brent crude for November futures dropped to $69.58 per barrel on Wednesday. Similarly, West Texas Intermediate (WTI) crude October futures also fell to $66.18 per barrel. This is a significant drop from the $130 per barrel peak that crude oil prices reached at the onset of the Russia-Ukraine war.
- Oil Companies Turn Profitable: India’s state-owned oil companies have seen substantial profits in the first quarter of FY 2024. With the oil companies making good margins and crude prices falling, many are wondering if the government will soon provide relief from high fuel prices. The last fuel price cut was in March 2024, just before the general elections, when both petrol and diesel prices were reduced by ₹2 per liter. However, no further price reductions have been announced in the past six months.
- Future Price Reductions: According to energy analysts cited by CNBC TV18, any decision to cut petrol and diesel prices by Oil Marketing Companies (OMCs) is likely to come after reviewing Brent crude prices for a few more weeks. The international oil market has seen significant fluctuations this year, and retail fuel prices in India are directly influenced by global oil prices since the country imports approximately 87% of its crude oil needs.
Company Performance:
- OMCs Show Profit Growth: The fall in crude prices has benefitted India’s major Oil Marketing Companies, including Indian Oil Corporation (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL). Combined, these three OMCs recorded a net profit of ₹7,371 crore in the first quarter of FY 2024. However, the performance was somewhat dampened by low gross refining margins (GRMs) and under-recoveries from LPG sales.
Will Fuel Prices Be Reduced?
According to Suman Chowdhury, Chief Economist and Head of Research at Acuité Ratings & Research, if crude oil prices remain below $80 per barrel, it could significantly improve the financial position of OMCs and increase the likelihood of a price cut. The upcoming elections in Haryana and Jammu & Kashmir may also influence the decision. The last time OMCs reduced petrol and diesel prices was in March 2024, ahead of the national elections, with a ₹2 per liter reduction across the country.
With crude oil prices nearly halving from their peak during the Russia-Ukraine war, there is increasing pressure on the government to pass on the benefits to consumers. The upcoming elections and the profitability of oil companies suggest that a fuel price cut could be on the horizon, providing much-needed relief to the common man.
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