Indian fuel retailers have hiked the price of petrol and diesel for bulk buyers by Rs 25 per litre. Public sector oil marketing companies (OMCs) Indian Oil Corporation Ltd. (IOCL), Hindustan Petroleum Corporation Ltd. (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL) all increased the prices on March 20 in line with their existing contracts.
At the same time, the price of retail fuel at petrol pumps remains the same for the past 135 days, despite the volatility that crude oil is experiencing in price right now due to the Russian invasion of Ukraine.
Who are these bulk users?
Bulk buyers are those entities that directly source oil tankers from OMCs due to their large requirements of fuel. Many of these entities either use diesel for powering generators for electricity or other industrial purposes.
Bulk users include factories, airports, bus fleets, transport fleets, malls, etc.
How does this increase work?
The bulk users directly source their fuel needs by calling for oil tankers. These sales are often governed by contracts. Now, the fuel price for bulk users has been hiked by Rs 25 per litre
After the hike, operating costs can rise by as much as 27 percent, sources in OMCs told The Times of India. As a result, these users can pass on the cost to their customers or try to absorb the new prices.
But bulk users also have the option of meeting their needs through retail petrol pumps. While inefficient, this will keep them outside the ambit of the Rs 25/litre price hike. For bulk users who are using tens of thousands of litres of fuel each month, the savings can quickly rack up to make up for the inefficiency of refilling directly from retail petrol pumps.
What does this mean for retail?
As bulk users shift towards retail outlets to source their fuel requirements, OMCs stand to lose even more money as they would be unable to make up the benefit of the fuel hike in bulk prices. OMCs are already under pressure due to the constantly shifting and volatile price of crude, which has once again gone above $110 a barrel.
As a result, the demand for fuel at retail outlets has increased and many bulk users have tried to top up their capacities if they have made advanced purchases at previous prices to ensure that they have an adequate supply for the future. This has created several logistical issues for OMCs, especially with a shortage of fuel trucks and rakes, a spokesperson from Jio-BP told PTI.
While PSU oil companies control 90 percent of the country’s petrol pumps, the others are controlled by companies like Nayara Energy, Jio-BP and Shell. The matter has compounded problems for these private companies as they are forced to match the prices of government-supported PSUs. But these companies may soon look at closure of petrol pumps temporarily while retail prices remain the same, people with knowledge of the matter told PTI.
