Morgan Stanley: India Energy - Another Fuel Price Hike
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Morgan Stanley notes that Indian diesel and gasoline prices were raised by 90 paise per liter, bringing cumulative adjustments to approximately $6.5 per barrel, or 4.0% to 4.5%, against a Brent crude benchmark of $82 per barrel. This incremental adjustment reduces transport fuel marketing losses for oil marketing companies (OMCs) to $9 per barrel.
Historically, OMCs have implemented these adjustments using daily or weekly pricing mechanisms with minimal impact on consumption. Despite this progress, LPG losses remain elevated at $1 billion per month. However, the government has previously compensated OMCs for these controlled-product losses.
Morgan Stanley expects further price hikes in the coming weeks, which should gradually improve long-term OMC profitability. Among the listed entities, HPCL stands to benefit the most, followed by BPCL. Reliance Industries and ONGC are also positioned to gain from the evolving pricing dynamics.
Currently, Indian retail prices including taxes stand at $152 per barrel for diesel and $163 per barrel for gasoline. This pricing structure implies domestic refining margins of $11 to $13 per barrel for these transport fuels. Overall, the ongoing price adjustments signal a continued normalization of profitability for the sector, though LPG dynamics remain a key metric to monitor.
Key exhibits
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Exhibit 2
