Daily price change oils OMCs’ inventory
The first month of introducing a daily change in fuel prices might have left dealers fuming but oil marketing companies (OMCs) are a happy lot. The nationwide roll-out of the dynamic fuel pricing mechanism is helping manage inventory better, said OMC officials.
Starting June 16, the petroleum ministry decided to allow a daily change in fuel prices at retail outlets, to mirror changes in global crude oil prices. Before that, outlets revised prices on a fortnightly basis. After a brief trial in five cities, the mechanism was adopted across the country.
OMCs are seeking to manage inventory-related transportation and manpower better. “With data collected from the initial months of the pricing mechanism, we will be able to plan our inventory logistics and manage manpower. In the first month, inventory management improved with dealers not speculating on price revisions,” said an OMC official.
The change in price mechanism has helped OMCs root out fluctuations in fuel demand from dealers owing to speculation over fortnightly price changes. This, in turn, has left the dealers’ community upset. “The response from their network has not been encouraging as the continuous drop in prices has led to inventory losses. However, with increase in prices, the same would get compensated in the long run,” said an Indian Oil Corporation (IOC) spokesperson.
Associations of fuel retailers claim about 53,000 OMC outlets lost ~400 crore in the first two weeks of the roll-out.
The move is not expected to improve or impact profit margins for OMCs. “The purpose of dynamic pricing was not meant to improve the margin but to improve inventory management and insulate customers from sudden and wide variations in prices,” the IOC spokesperson said.
Of the 59,595 fuel retail outlets in the country, about 54,000 are under state-run companies, such as the IOC, Hindustan Petroleum and Bharat Petroleum.
At present, there is no intent to change the inventory levels maintained. “Customers have benefited and there has been more uniformity on how fuel is lifted from us. Volumes would remain the same. There is no intent to maintain lower inventory. It would be maintained as earlier,” said another official.
In case of crude oil, the inventory level is also a strategic decision and cannot be altered solely based on dealer demand patterns, said an official.
Consumers gained from the daily price revision owing to a fall in global prices. “The second fortnight of June 2017 witnessed a lowering of international prices and as such the domestic prices have also followed suit,” IOC said. However, consumers will also have to shell out more money as crude oil prices inch upwards.