Brokerage firm JM Financials has suggested that there might be a reduction in petrol and diesel prices by ₹3-5 per litre around the Diwali festival. This potential decrease is attributed to upcoming state elections in India, slated to begin from November-December 2023. JM Financials anticipates that this price cut will primarily occur through a reduction in excise duty or value-added tax (VAT). The move is seen as a measure to provide relief to consumers as oil marketing companies (OMCs) grapple with the challenges of high crude prices.
The recent extension of voluntary oil output cuts by oil producers Saudi Arabia and Russia has led to a surge in international crude prices, reaching a 10-month high. These developments have implications for OMCs, such as Indian Oil, Bharat Petroleum Corp Ltd (BPCL), and Hindustan Petroleum Corp Ltd (HPCL), as they might need to adjust petrol and diesel prices due to the rising international crude prices.
The government recently reduced the price of domestic 14.2 kg LPG cylinders by ₹200 per cylinder for all 330 million domestic LPG consumers, effective from August 30. While this move lightens the financial burden on consumers, it could increase the working capital of OMCs, given the typical lag in government compensation.
In conclusion, with crude oil prices hovering around $90 per barrel, OMCs may face the need to unfreeze petrol and diesel prices. The central government, with its improved fiscal position, could compel OMCs to lower petrol and diesel prices as they have seen stronger profits in the current fiscal year. JM Financials expects this reduction to take place around Diwali, which precedes the upcoming state elections leading up to the 2024 general elections.
