Fuel prices: How much profit or loss are oil companies making on current petrol and diesel prices? Explained

Petrol, diesel prices: State-owned oil marketing companies - Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) - have not revised petrol and diesel prices in line with the cost for over a year now. The past year saw crude oil rise to $116.01 per barrel in June, and drop to $70.11 in December, yet oil retailers did not hike prices in line with the highest-highs and neither passed the benefit over to customers when prices dropped sharply. 

This was largely done to recoup the losses incurred by the oil retailers when barrel prices topped $120. 

The three fuel retailers haven't changed petrol and diesel prices since April 6, 2022, despite input crude oil prices rising from USD 102.97 per barrel that month to USD 116.01 in June and falling to USD 78.09 this month.

Petrol, diesel prices: How much do oil companies earn?

As of today, oil companies are making a profit of Rs 10 per litre on petrol, but the retail prices haven't been reduced as they recoup past losses and make up for a loss of Rs 6.5 per litre on diesel, a report said.

ICICI Securities said in a report that after record high losses of Rs 17.4 per litre on petrol and Rs 27.7 a litre diesel for the week ended June 24, 2022, margins for petrol are estimated at a positive Rs 10 per litre for Q3 (October-December 2022), while diesel losses too have likely narrowed to Rs 6.5 a litre for the same quarter." 

As per the report, the three oil companies have incurred net earnings losses while holding prices when input cost was higher than retail selling prices. 

IOC, BPCL and HPCL combined posted a combined net loss of Rs 21,201.18 crore during April-September despite accounting for Rs 22,000 crore announced but not paid LPG subsidy.

"Coupled with gross refining margins (GRMs) of USD 10.5-12.4 per barrel (net of windfall tax and estimated inventory loss), we do believe operating earnings for the three companies will likely swing back to the black post the record loss seen in Q2," ICICI Securities was quoted saying by PTI.

It estimated earnings before interest, taxes, depreciation, and amortization (EBITDA) of Rs 2,400 crore for IOC in the October-December quarter, Rs 1,800 crore for BPCL and Rs 800 crore for HPCL.

The oil retailer may however end up posting net losses, it added. 

IOC may end up with a net loss of Rs 1,300 crore while HPCL may post Rs 600 crore loss. BPCL may break even, the analysis said.

Fluctuating International Oil Prices 

International oil prices have been turbulent in the last couple of years. It dipped into the negative zone at the start of the pandemic in 2020 and swung wildly in 2022 -- climbing to a 14-year high of nearly USD 140 per barrel in March 2022 after Russia invaded Ukraine, before sliding on weaker demand from top importer China and worries of an economic contraction.

But for a nation that is 85 per cent dependent on imports, the spike meant adding to already firming inflation and derailing the economic recovery from the pandemic.

So, the three fuel retailers, who control roughly 90 per cent of the market, froze petrol and diesel prices for the longest duration in at least two decades. They stopped daily price revision in early November 2021 when rates across the country hit an all-time high, prompting the government to roll back a part of the excise duty hike it had effected during the pandemic to take advantage of low oil prices.

The freeze continued into 2022 but the war-led spike in international oil prices prompted a Rs 10 a litre hike in petrol and diesel prices from mid-March before another round of excise duty cut rolled back all of the Rs 13 a litre and Rs 16 per litre increase in taxes on petrol and diesel effected during the pandemic.

That followed the current price freeze that began on April 6 and still continues.

The oil ministry is pushing for compensation for the three retailers to make up for the losses they incurred.

(With PTI Inputs)