The leading rating agency - CRISIL in its latest report has stated that the price of petrol may increase 5-8 per cent and that of diesel by 6-8 per cent over the next 3-4 months and massively boost the margins of state-run refiners, following the move by Organization of Petroleum Exporting Countries (OPEC) to cut production from next month. Report further highlighted that the price of Brent crude could increase to $50-55 per barrel by March 2017, and if it surges to $60, the price of petrol and diesel could touch Rs.80 and Rs.68 a litre, respectively.
As per the report, increasing crude prices also mean that profitability of public sector refiners would improve in the third quarter of the current fiscal driven by inventory gains. It noted that in December, the average price of Brent is seen over $50. Given that refiners typically book crude 30-40 days in advance, prices for December delivery will be lower at $46 as was seen in November. Report added that this inventory gain is what will boost the Gross Refinery Margins (GRMs) of public sector refiners in the third quarter to $6-7 per barrel levels from $3.8 in the second quarter.
The report pointed out that a production cut always lifts prices, but the success of the OPEC agreement depends on adherence. Previously, there have been instances of members breaking away from the cartel because of domestic compulsions. On domestic demand scenario, the report expects the demonetization and the consequent reduction in economic growth to curb usage, but things would rebound once currency in circulation reverts to normal level. Recently, OPEC decided to cut production of crude oil by 1.2 million barrels per day (mpbd) for the first time since 2008.