Fuel prices up ₹4 a litre in 7 days; petrol nears ₹100 in Delhi
PremiumInflation is expected to rise further, as the gap between global oil prices and Indian retail prices is still high
Retail auto fuel prices on Monday were increased by 30 paise to ₹99.41 per litre, and diesel by 35 paise to ₹90.77 a litre in Delhi. This is the sixth increase in fuel prices in seven days across India.
In Mumbai, petrol price was up 31 paise to ₹114.19, and diesel by 0.37 paise to ₹98.50 per litre. Fuel prices are expected to rise further, with petrol set to cross ₹100 a litre in Delhi.
Since the daily revision of retail fuel prices resumed on 22 March, petrol has increased by ₹4 a litre, while diesel rose by ₹4.10 per litre. Revision of retail fuel prices was halted in November despite global oil prices surging by more than $40 per barrel.
Inflation worries, however, may not end anytime soon as the gap between global oil prices and retail prices in India is still high. Retail inflation has already breached the Reserve Bank of India’s tolerance level of 6% for two months, with the Consumer Price Index (CPI) at 6.07% in February, according to data by the National Statistical Office (NSO).
According to JY Lim, analyst, S&P Global Commodity Insights, soaring CPI continues to be a cause for concern, and with high inflation India will have less leeway to boost its economy.
With inflation likely to go up, Abheek Barua, chief economist, HDFC Bank, said if the cumulative price hike in retail fuel prices is up to ₹5 per litre, it will add 20-30 basis points to the inflation rate. An increase of ₹18-20 a litre is required to bridge the gap between global crude and retail transport fuel prices, he added.
Prashant Vasisht, vice-president and co-head, corporate ratings, ICRA, said in the current scenario staggered price hike may continue throughout April and may also spill over to May. He, however, added that it also depends on the global scenario, that is, if crude prices continue to rise, the increase in pump prices of petrol and diesel may persist for long.
With India importing 85% of its energy requirements, the high crude prices would also have an impact on the current account deficit (CAD). According to S&P Global Platts Analytics, an increase of 10% in oil prices leads to nearly $15 billion in India’s current account deficit, or 0.4% of gross domestic product (GDP).
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Barua said in the current scenario, India’s CAD is expected to remain above 2.5% of GDP. He, however, said there are concerns of a global slowdown amid the Russia_Ukraine conflict and rising covid cases in China. “A slowdown is looming large and may hit globally in the second half of FY23, pulling down the demand for oil and eventually the oil prices to much lower level than current prices," he added.
On Monday, global oil prices eased following demand concerns in China. JP Morgan recently lowered its expectation on the second-quarter oil demand in China by 520,000 barrels per day to 15.8 million barrels a day.
Crude prices have been volatile since the Russian invasion of Ukraine, which has also kept the Indian energy basket higher. Although the government has so far not taken any step to curb the increase in fuel prices several options, including lowering of excise duty, are available. In February, the Centre said it was committed to “supporting initiatives for releases from the strategic petroleum reserves". Going by the consumption pattern of 2019-20, strategic petroleum reserves capacity of 5.33 million metric tonnes is estimated to provide for about 9.5 days of India’s crude oil requirement.
In December, the government had agreed to release 5 million barrels of crude oil from its strategic petroleum reserves in consultation with other global energy consumers amid rising prices and supply concerns. Also, Russian Foreign Minister Sergei Lavrov is likely to visit New Delhi this week. Queries sent to the ministry of petroleum and natural gas and the Russian embassy on Monday evening remained unanswered till press time.
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