Excise duty cut seen providing higher pricing freedom to OMCs

The latest reductions in the excise duty on petrol and diesel by the Centre is seen to increase the ability of the state-run oil marketing companies (OMCs) to raise auto fuel prices if crude oil rates increase in the international market. The surge in global crude oil prices are likely to continue till the end of the year with the OPEC+ countries showing no signs of increasing production over the pre-determined levels till December, even as global crude demand is on the rise.

Analysts at Motilal Oswal Financial Services pointed out that amid growing concerns on the ability of OMCs to raise record-high prices further, investors remained wary of investing in OMCs in light of the upcoming elections in Goa, Manipur, Punjab, UP and Uttarakhand by the end of FY22. “While the cut in excise would not raise marketing margins immediately, they would increase the ability of the OMCs to raise prices if oil prices gain from hereon,” the brokerage firm added.