Petrol, diesel prices could drop before Diwali? Two major brokerages weigh in

An early Diwali surprise may be in store for fuel consumers, with speculation pointing to a possible ₹2-3 per litre cut in petrol and diesel prices. 

This comes as global crude oil prices have dipped, boosting margins for Indian Oil Marketing Companies (OMCs) and opening the door for price reductions.

ICRA estimates that the crude basket, averaging USD 74 per barrel in September (down from USD 83-84 per barrel in March), offers a solid foundation for potential cuts. The last reduction in March 2024 also saw a ₹2 per litre drop in prices.

Girishkumar Kadam, Senior Vice President at ICRA, stated, "OMCs' net realisation for petrol was ₹15 per litre higher than international prices in September, and ₹12 higher for diesel. If crude prices stay steady, there's room for a ₹2-3 per litre cut in retail fuel prices."

Adding to the speculation, CLSA suggests a price cut could come after October 5, aligning with Oil Secretary Pankaj Jain’s earlier remarks. With Maharashtra's crucial state elections expected in November, fuel price reductions could serve as a strategic move by the BJP-led alliance to appeal to voters.

However, CLSA also anticipates that the government could offset any price cuts with an excise duty hike on petrol and diesel. Current excise duties of ₹19.8 per litre on petrol and ₹15.8 per litre on diesel remain 40-50% lower than their 2021 peak levels. 

A ₹1 hike could generate an additional ₹16,500 crore annually from diesel and ₹5,600 crore from petrol, a potential windfall as the government looks to bolster revenue.

While consumers may see relief at the pump, the excise duty hike could temper those benefits. For OMCs like Indian Oil, Bharat Petroleum, and Hindustan Petroleum, a combination of price cuts and tax hikes could squeeze margins, especially if crude prices rise above USD 80-85 per barrel.