OIL & GAS

Explained: Lower fuel prices may not last beyond elections, hurt BPCL valuation

Oil Marketing Companies (OMCs) cut the prices of petrol and diesel by 14-16 paise per litre across major cities on Thursday after a 15-day halt in price revisions as the states of West Bengal, Tamil Nadu, Kerala and Assam went to the polls.

We examine the impact of price halts during elections and how consumers may end up paying higher prices for petrol and diesel after elections are over.

Why are there lower fuel prices during elections?
Even though OMCs are notionally free to set the prices of petrol and diesel as both the products have been deregulated, OMCs often cut the price of petrol and diesel or hold them constant around elections as fuel prices often become a political issue. In the latest round of halts, the OMCs have revised the price of petrol and diesel only four times in a 47-day period which has witnessed significant volatility in the price of crude oil, the key input cost for autofuels.

Experts noted that in early March, OMCs faced negative marketing margins on petrol and diesel as the price of Brent crude rose to $70 per barrel but OMCs kept prices constant.

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