InvestorQ : Why are diesel and petrol prices rising consistently and what does that mean for the OMC stocks like BPCL, IOCL and HPCL?
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Why are diesel and petrol prices rising consistently and what does that mean for the OMC stocks like BPCL, IOCL and HPCL?

Answer
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3 months ago


Diesel price have hit a fresh record high after rates were hiked for 15 days in succession. Diesel prices are up close to Rs.8 per litre implying a rise of nearly 11%. Rates have been increased across the country and they could eventually vary from state to state depending on the incidence of local sales tax or VAT, since oil is outside the ambit of GST.

The real irony in diesel and petrol prices is that taxes make up 70% of the retail selling price. In fact, Rs.50.69 per litre of petrol is just taxes i.e. 64%. In the case of diesel also, the state and central taxes put together account for a whopping 63% of the total retail cost. For example, now petrol in Mumbai costs Rs.86.04 per litre while diesel is priced at Rs.76.69.

This is the highest level of petrol and diesel since October 2018 when global oil prices had shot up. Ironically, today oil prices are around $42 per bbl and Indian consumers are paying a steep price. However, this willingness to pass on the cost to customers by the government is going to be positive for most of the downstream OMC stocks.

Since the government took over in 2014, the government has made the best of the fall in crude oil prices by slicing away the cost benefits in the form of higher excise on petrol and diesel. This has been largely instrumental in shoring up the revenues of the government. However, this has also added up to inflation in the economy.