The domestic rating agency, ICRA in its latest report has said that petrol and diesel prices have jumped 8 percent since dynamic daily pricing for these fuels was introduced in mid-June. It also noted that the sharp increase in the price of petrol and diesel can be attributed to a 14 percent increase in international fuel prices. Apart from this, it also noted that the increase was also due to a 40 percent rise in dealer's commission to Rs 3.57 per litre from Rs 2.55 earlier and a moderate increase in marketing margins.
The report showed that the retail selling price of petrol in Delhi increased by 7.9 percent from Rs 65.23 per litre as on June 17 to Rs 70.41. However, it pointed out that sustained rise in fuel prices in absence of moderation in taxes (excise duty and VAT), could impact the growth in demand, besides leading to inflationary pressures in the economy. It further said that due to the earlier practice of fortnightly revisions, the price changes were at times sharp which would now be gradual, leading to lesser resistance from the public and lower risk of political intervention.
The rating agency further said that as dealers and some consumers were able to predict price movements, they had been resorting to bulk purchase or draw down from the inventory towards the end of the fortnight, depending on the direction of prices, resulting in some lumpiness in sales and opportunity loss on the marketing margins for oil companies. It also said that with greater autonomy and lower political intervention, oil firms could over time expand marketing margins, albeit increasing competition from private retailers would eventually moderate that. Moreover, it noted that any intervention by the government, which limits the freedom of oil marketing companies (OMCs) in price revisions, in light of rising fuel prices could be a credit negative.