The marketing margins on retail sales of auto fuels for the Indian oil marketing companies (OMCs) have improved in recent weeks with the reduction in crude prices.

The rating agency anticipates that there is headroom for the downward revision of retail fuel prices if crude prices remain stable at current levels. The outlook for the refining and marketing sector remains stable.

"ICRA estimates that the OMCs' net realisation was higher by Rs 15/litre for petrol and Rs 12/litre for diesel compared to international product prices in September 2024 (till September 17)," said Girishkumar Kadam, SVP and Group Head - Corporate Ratings, ICRA.

Another leading rating agency CLSA said on Wednesday that petrol and diesel prices may be reduced after October 5.

According to ICRA, the retail selling price (RSPs) of these fuels have been unchanged since March 2024 (Rs 2/litre was reduced on petrol and diesel on March 15) and there appears to be headroom for their downward revision by Rs 2-3/litre, if crude prices remain stable, he added.

Crude prices have witnessed a sharp decline in the last few months, primarily due to weak global economic growth and high US production and the OPEC+ has pushed the rollback of its production cuts by two months to combat the declining prices.

The impact is mainly on account of weak demand from China due to rising electric vehicle (EV) sales, muted industry demand and real estate downturn.

Further, demand in Europe has also been subdued due to weak industrial activity and a structural shift in vehicle fleets towards EVs.

As per the report, a marketing gain of Rs 1/litre on petrol and diesel would compensate for the gross refining margin (GRM) loss of 0.9 $/barrel for the domestic refining and marketing industry.

Petroleum, oil and lubricants (POL) consumption in India witnessed YoY growth of 5 per cent in FY24 and is likely to witness a 3-4 per cent growth in FY25, driven by economic progress, increasing mobility and air travel.

The OMCs have planned a significant capex in the refining segment. The domestic refining capacity is expected to increase to 306 million MT over the next three to four years from the current capacity of 256.8 million MT as of March 2024 to support the increased consumption and exports.