High under-recoveries continue despite petrol price hike. Despite a US$8/bbl decline in Brent crude last fortnight and a Rs5/litre rise in petrol, auto-fuel under-recoveries for 16-31 May continued to be high at `13/litre as losses on diesel/petrol were `14.7/`5.2 a litre. We estimate auto-fuel breakeven crude at US$77.8/bbl (petrol: US$101; diesel: US$72), up US$1 from the previous fortnight due to the recent increase in petrol prices.

Diesel price-hike imminent. The GoM (Group of Ministers) is expected to meet this week to decide on price hikes in diesel and cooking fuel. We believe diesel would be upped by `2-3/litre, with only a marginal increase in cooking-fuel prices. Diesel has a 4.67% weight in the wholesale price index, and an indirect impact of a similar magnitude would be felt in the next 3-4 months.

Refining margin strong; complex refiners gain. The refining margin for 1-15 May continued to be strong, at US$12.1/bbl, due to the Mississippi floods which led to shutdown of some US refining capacity. Refining margin for 1QFY12 till now has been US$9.7/bbl compared with US$7.4 in 4QFY11. The Brent-Dubai spread was strong, at US$5/bbl, adding to complex refiners' margins.