Oil marketing companies are likely to take a hit of around Rs 4,500 crore for the rest of the year following the central government-mandated one-rupee cut in fuel prices.

While this is the view of a top executive of a state-run oil retailer, rating agency Icra’s senior vice-president K. Ravichandran estimates this potential loss at Rs 7,000-7,200 crore for oil companies.

Following the announcement of the price cut on Thursday, the stocks of oil marketing companies such as Hindustan Petroleum, Indian Oil Corporation and Bharat Petroleum fell over 18 per cent as they would be sharing the burden of the fuel price cut at a time crude prices are high.

The market capitalisation of HPCL fell 12 per cent during the day to Rs 33,615 crore from Rs 38,299 crore on Wednesday, while BPCL fell 11 per cent to Rs 72,963 crore from Rs 81,880 crore and IOC 10.5 per cent to Rs 1,36,971 crore from Rs 1,52,959 crore.

“In a sense, the directive to oil companies to cut prices by a rupee and bear losses, as part of a pre-election decision, marks the reversal of the government’s stand that it will adhere to market principles in determining oil prices.

“At the same time the expectation that states should also cut taxes by Rs 2.50 against the Centre's cut of Rs 1.50 also seems a bit discriminatory ... after all states do not have oil companies to bear part of the cut,” said Amit Bannerjee, a merchant banker representing East Asian Funds.

Analysts, however, pointed out the real impact of high oil prices will be felt in the winter months of November-January. “Post November when the Iran sanctions kick in, where will the oil price go? If it remains elevated, there will be more inflationary problems for the economy,” Care Rating said in a note.

Analysts expect crude to touch or come near $100 a barrel by January, unless Opec agrees to increase output or Iran is allowed to come back into the global oil trading arena. Sanctions by the US have turned Iran into a pariah with most countries either stopping or reducing imports from the West Asian nation.

Officials said there was a scope for further tax cuts at a later stage. Almost half of the fuel price is made up of taxes — the Centre levies a total of Rs 19.48 per litre of excise duty on petrol and Rs 15.33 per litre on diesel. On top of this, states levy value added tax (VAT). Maharashtra has the highest VAT of 39.12 per cent on petrol, while Telangana levies the highest VAT of 26 per cent on diesel.

Delhi charges a VAT of 27 per cent on petrol and 17.24 per cent on diesel. Bengal charges 27.78 per cent VAT on petrol and 15.99 per cent VAT on diesel.