Analysts revise demand outlook for fuels: Fuel prices hiked 80 paise/litre for the second day

As the oil marketing companies (OMCs) hiked retail rates for petrol and diesel by 80 paise/litre for the second consecutive day on Wednesday, analysts have revised the demand outlook for fuels. JY Lim, an analyst with S&P Global Commodity Insights, said the country’s oil demand outlook for 2022 has been revised down by 35,000 barrels per day (15.5%) from the February outlook of 225,000 barrels per day. However, Lim believes in the second half of 2022, the demand will be 275,000 barrels per day, higher than the level in H1 of 2022, driven by a more broad-based pick-up in the economic activity amid an improving Covid situation and widening vaccination rollouts.

The auto fuel demand is largely price-inelastic.

Analysts feel given the volatility in crude prices, there have been attempts by the government to align crude oil contracts with negotiated (discounted) pricing. OMCs, too, have been planning to fill their inventories, which is helping India to keep the average crude basket at manageable levels in the short term.

Gaurav Moda, partner, energy at E&Y, said since trucks carry majority of goods across the country, the rise in diesel price could drive up rates of most goods.

Petrol and diesel prices were raised again on Wednesday by 80 paise per litre after Tuesday’s increase that lifted a freeze of 137 days. In Delhi, petrol got costlier by 80 paise to 97.01/litre, higher than Tuesday’s Rs 96.21/litre, while the rate of diesel rose to 88.7/litre, up from Tuesday’s Rs 87.47 per litre.

In Mumbai, petrol prices rose by 85 paise to Rs 111.67 per litre, higher than the previous rate of Rs 110.82 per litre. Diesel costs rose to Rs 95.85, up from Tuesday’s Rs 95 per litre.

The price of crude oil touched a high of $140 per barrel. The gross marketing margins of OMCs have fallen with under recoveries as high as Rs 17 per litre in the last fortnight based on weighted average Brent price of $118/barrel.

Last Thursday, the price of diesel sold to bulk users was hiked by about Rs 25 per litre in line with a near 40% rise in international oil prices, but the following hike in retail price is expected to be staggered over coming weeks.