LPG Price Hike: A Game-Changer for Oil Marketing Firms

Oil marketing companies are expected to reduce losses from LPG sales due to recent price hikes and falling international fuel prices. A report predicts a significant reduction in under-recoveries, with losses potentially reaching zero if trends persist, enhancing profitability in the sector.

Oil Marketing Companies (OMCs) could see a significant reduction in their losses from domestic LPG sales, thanks to a recent price hike and falling international fuel costs, according to Antique Stock Broking. The government has increased LPG cylinder prices by Rs 50 from April while raising excise duties on petrol and diesel by Rs 2 per litre.

The report highlights that the increase in LPG prices is strategically aimed at covering the under-recoveries that OMCs have been facing due to selling LPG below cost. "With the latest hike, LPG losses are expected to drop to INR 160 per cylinder in May 2025, potentially reducing to INR 60 by the second quarter of the financial year 2025-26," the report stated.

As crude oil prices and international propane prices from Saudi Arabia decline, these lower losses are anticipated. The report forecasts that propane prices could decrease by USD 85 per tonne, reaching about USD 525 per tonne by August. There is a chance that if trends continue, LPG under-recoveries could fall further to Rs 60 per cylinder, possibly reaching zero.

Even if retail fuel prices decrease soon, as long as crude oil stays around USD 65 per barrel, OMCs will still benefit from strong marketing margins, cushioning any refining losses. The report also notes that OMCs are thriving due to robust auto fuel sales profits and expected improvements in Singapore refining margins.

Contributing factors include refinery shutdowns, advantageous pricing between light and heavy crudes, and the rollback of supply cuts by major oil producers. Additionally, Saudi Arabia's potential reduction in its official selling price (OSP) is expected to further enhance refining margins. (ANI)

(With inputs from agencies.)