Will there be any relief from fuel price hike?

Good news for consumers at petrol pump, but bad news if you are a shareholder in any of the oil companies.

Reports suggested that the government has asked the oil companies such as IOC, HPCL, BPCL to absorb Re 1/litre price hike.

Government asks oil companies to absorb Re 1 per litre cost

Oil stocks plunged in the trade on Wednesday losing between 6-8% as the government kept silence on this issue.

The stock market reckons that with the Karnataka elections round the corner, the government wouldn't want to hit consumers with another price increase. Remember, Brent crude oil prices are past $70 a barrel. Every $5 change in crude oil prices requires about Rs 2/litre change at the pump. So what is the solution? Simple! Ask oil companies to bear the burden.

To be sure, we have seen this play out late last year. In the run up to the Gujarat assembly election, as crude prices rallied, retail fuel price hikes were stopped and investors worried about the impact on the financials of these companies. But after the election oil companies again started  increasing prices aggressively. Will the same story repeat this time as well?

Some believe that the government should cut excise duties. Higher crude oil prices have meant a bounty for the government over the last few years. But there is no indication from the government on this.

This could be a tough year for oil companies as many states are gearing up for assembly elections.