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Petrol stations reduce stock in anticipation of fuel price cut

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In Short:

Fuel dealers are preparing for potential price cuts by oil marketing companies to avoid financial losses. Reduced stock levels won’t affect consumer supply. Dealers in rural areas could lose ₹1-1.5 lakh, tier-III cities ₹5-7 lakh, tier-II cities ₹10-15 lakh, and metro cities up to ₹25-30 lakh. OMCs will consider price cuts based on international oil prices. The government has cut excise duty to ease fuel prices.


Fuel Dealers Brace for Price Cuts by Oil Marketing Companies

Fuel dealers have adopted a new strategy to handle anticipated price cuts by oil marketing companies (OMC) that could result in significant financial losses due to the immediate impact of price revisions.

Reduced Inventory, Adequate Supply

Despite the decreased inventory, dealers have reassured that there is ample supply to meet the upcoming consumer demand.

Industry Insights

“Since the speculation of a price cut began around January, pumps have been operating with minimal stock to prevent heavy losses,” shared a government official anonymously.

Suneet Bagai, former president of the Rajasthan Petroleum Dealers Association, explained that the potential losses for dealers vary based on the location, with rural dealers facing losses of about ₹1-1.5 lakh on average.

Public Demand and Consumer Behavior

Bagai noted a public demand for lower fuel prices, especially after it was expected that prices would decrease if they fell below $80 per barrel. However, the prices remained below that threshold for an extended period.

He further added, “The anticipation for a price cut was also high before the assembly elections in four states last year, leading to a trend of reduced stocking at pumps. Subsequently, purchases increased after the elections, but in the last month, pumps have once again reduced buying, maintaining only necessary levels.”

Dealer Concerns and OMC Response

Highlighting the financial strain on pumps due to operating at low margins, Bagai mentioned that dealer commissions have stagnated for seven years. There have been calls from petrol pump associations for an increase in commissions.

Contrary to concerns of fuel scarcity, Ajay Bansal, a representative of the All India Petrol Pump Dealers Association, emphasized that there is no shortage. While purchases have decreased, the supply remains stable to meet consumer needs without any adverse impact.

Price Cut Speculations

Petrol and diesel prices have not changed since May 2022 following a government decision to lower excise duty. Reports have suggested a potential price cut of ₹5-10 per liter by oil marketing companies ahead of general elections.

Union minister for petroleum and natural gas, Hardeep Singh Puri, hinted at possible price revisions by OMCs based on their profits over recent quarters and the market scenario.

Outlook and Government Initiatives

While retail fuel prices are determined daily by OMCs based on international factors, prices in India have remained stable since May last year due to duty cuts. The government’s decisions on fuel prices have been influenced by global geopolitical situations and market trends.

The central government’s measures to reduce domestic cooking gas prices and previous excise duty cuts on petrol and diesel have contributed to an expectation of a fuel price reduction.

Conclusion

With uncertainties in the international energy market and geopolitical tensions, the decision to lower retail fuel prices hinges on the stabilization of external factors. The role of oil marketing companies and their financial viability are crucial in determining future price revisions.

Industry Overview

India has approximately 70,000 petrol pumps, predominantly operated by state-run OMCs such as Indian Oil Corp Ltd, Hindustan Petroeum Corp Ltd, and Bharat Petroleum Corp Ltd. Private players like Jio-BP, Nayara, and Shell also have a presence in the market.

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