Despite gradual fall in oil prices globally since Monday, petrol and diesel prices have not come down in India and have remained at four-year high since the start of 2018 although impetus like wider market selloff and a stronger dollar continue.
In mid-January, Brent crude prices climbed 33 per cent to touch around $70 per barrel mark, but on Friday, it was down 44 cents or 0.7 per cent, at $64.37 a barrel. In fact, on Thursday it dipped by 1.1 per cent, the lowest since December 20, 2017.
Though fuel prices are fully governed by the dynamic-daily pricing mechanism which was adopted by state-run oil marketers last year, petrol price in Mumbai was at Rs 81.23 per litre on Friday.
Similarly, petrol prices in New Delhi stood at Rs 73.35 per litre, Kolkata at Rs 76.04 per litre and Chennai at Rs 76.08 per litre. Compared to the previous day’s data, petrol prices in New Delhi and Kolkata decreased by just 2 paisa per litre each, while in Mumbai and Chennai it was down by 1 paisa per litre and 3 paisa per litre respectively. Such trend in petrol prices was last seen 2014.
There seems to be no respite for the common man in near future as the central bank in its monetary policy review recently warned that inflation risks were skewing upwards due to higher oil prices. The banking regulator also raised its March quarter Consumer Price Index (CPI) inflation forecast to 5.1 per cent and projected an inflation range of 5.1-5.6 per cent in the first half of the next fiscal year.
As far as oil price movement is concerned, international oil prices fell for the sixth day on Friday after Iran announced plans to boost production and the US crude output hit record highs, adding to concerns about a sharp rise in global supplies, including India.
Experts, nevertheless, felt that the rise was due to the fears of the production cut by Organisation of the Petroleum Exporting Countries (OPEC) and non-members led by Russia. However, with Iran announcing to increase its oil production over the next four years, the oil prices began falling.
“The consistent decline in US oil inventories over the past several weeks and decline in US oil production from January 5, 2018 due to severe weather conditions have pushed oil prices higher,” said an expert who tracks the oil movement in the country.
Besides, there is widespread speculation that the upcoming mega IPO worth over $100-billion of Saudi Arabia-based firm Aramco could jack up international fuel prices, especially Asian countries, including India through cartelisation of their output. “The kingdom needs higher oil prices to entice international investors to buy a stake in the state-owned company, which supplies almost all its crude. Using its OPEC clout to restrict global supplies and pump up the cost of its barrels makes the mega offering look more appealing but the move has also revived the kingdom’s biggest enemy in the form of US shale oil,” an oil expert told The Pioneer on condition of anonymity.
However, HPCL CMD Mukesh Kumar Surana said, “Crude production in the US has considerably increased recently and the good news coming before the current level of global crude prices below 65 dollar per barrel is interesting thing to watch for. As far as domestic demand is concerned, there is no straight formula on this. I think there is more elasticity on diesel demand than petrol.”
When asked about role of oil marketing companies (OMCs) on the price rise, a senior official of PSU oil retailer said, “No oil firm is responsible for the rise of oil prices, rather it all depends upon global crude movement as a whole. Domestic price movement depends upon various factors such as mismatch movements of dollar with crude prices, volatility of markets, oil output demand, etc which may push up or pull down the price barometer in domestic markets.”
Despite serious interventions of the Government in this issue, price rise in fuel products continues. Finance Minister Arun Jaitley has already trimmed down excise duty on various products, especially fuel products, during FY19 Budget, pinning down hopes that petrol and diesel prices would go down.
The Government has lowered basic excise duty on petrol and diesel by Rs 2 per litre each to Rs 4.48 and Rs 6.33 per litre for unbranded ones, while excise duty on petrol and diesel prices also followed similar reduction to Rs 5.66 per litre and Rs 8.69 per litre respectively. It may also be noted that while providing Rs 2 per litre excise cut in fuel products, the Government also slapped a new Rs 8 per litre “Road and Infrastructure Cess” on motor spirit.
On the other hand, Oil Ministry has been persistently requesting to the States to cut VAT in order to lower the fuel prices in the country. Out of the 19 BJP-ruled States in the country, the only States, which reduced VAT following the October 3, 2017 cut in excise duty by the Centre for the first time, were Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh.
In the last fiscal (FY17), the Government received 23 per cent of its revenue from the oil and gas sector. Petrol and diesel are the mainstays for OMCs, accounting for about 51 per cent of the total petroleum product consumption in India as of FY17.
As per available data, the Government earned income of Rs 1,66,378 crore in the last fiscal (FY17) compared to the income of Rs 1,29,045 crore in FY14 from VAT only. Income from excise duty touched a whopping Rs 2,42,961 crore in FY17 as against mere income of Rs 77,982 crore in FY14.
The fuel price surge only depends upon supply and demand of the country. If the output demand is sufficiently met, then Government can cut down imports from other countries.
Companies like Reliance Industries, Cairn India Ltd, Oil India, Oil and Natural Gas Corporation (ONGC) among others in this sector are responsible for producing oil in its crude form. Together, these companies cater 25 per cent of India’s crude requirement, while the rest is imported.
This crude is then purchased from OMCs, which handle oil from their crude stage till the time it is handed to dealers in its refined form. Three PSUs - Bharat Petroleum Corporation Limited (BPCL), Indian Oil Corporation Limited (IOCL) and Hindustan Private Corporate Limited (HPCL) control around 95 per cent of this sector, while two private players, Reliance Industries and Essar, cater to the remaining market.