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Oil companies raise margins as consumers suffer fuel price blues

07:51 AM Mar 03, 2021 | Agencies

The oil price rise may be hitting the fuel consumers hard, but it is the oil companies that are making the most from the current situation, strengthening their margin on the sale of petrol and diesel and jacking up profits.

At the current historic high fuel price levels in the country, the marketing margin taken by the oil marketing companies (OMCs) on retail sale of petrol and diesel has touched a high of over Rs 3 per litre.

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What this means is that while rising fuel prices burn a bigger hole in the consumers' pockets, the OMCs are increasing their earnings and getting a lift in the current difficult environment created by the Covid-19 pandemic.

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According to a report from Motilal Oswal Financial Services, OMCs are earning marketing margins of Rs 2.8-3.6 per litre on petrol and diesel. This is higher than their long-term average of Rs 3 per litre and has been facilitated by regular price hikes.

As the OMCs are still raising the price of petrol and diesel in phases, companies could expect to give further boost to their revenue and profits.

Sources in the OMCs said that margins are related to refinery gate prices at which marketing companies get products for sale at pumps. If this falls down, the actual marketing margins rise. With PSU oilcos doing both refining and marketing, the development is actual neutral on their earnings.

The government (through excise) and OMCs (through gross marketing margins) have been using margins on auto fuels as a key tool to manage their finances. OMCs had increased gross marketing margins to Rs 3-5/litre in FY19-20.

This year (FY21), the marketing margin may be in the range of Rs 3 per litre, but it is coming at a time when petrol and diesel prices have climbed sharply over the last couple of months to stay at historic high levels of Rs 91.17 a litre and Rs 81.47 a litre, respectively.

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