Despite Crude Oil Price Crash Hasn’t led to Cheaper Petrol, Diesel For Indians. Know why?
When crude oil prices a new rock bottom every day, Indians are yet to see any impact in petrol and diesel prices at the fuel stations. The few reasons include increase in taxes by the government to raise its revenue and elevate marketing margins of state-run oil retailers to make up for the losses incurred.
The contract of West Texas Intermediate which is the benchmark for the U.S. oil industry dived below zero to minus $37.63 a barrel as the coronavirus outbreak knocked off demands and there’s no room left to store spare oil. This means that traders who were reluctant to the physical delivery were also willing to pay buyers to brush it off their shoulders. Though, for Asia, the benchmark is Brent crude and it fell below $20 per barrel, its lowest since February 2002. This is because the unprecedented global economic uncertainty and price war between Saudi Arabia and Russia is adding to the woes.
Even the output cuts negotiated by the U.S. failed to lift the crude value.
So far, Brent has hiked 66 percent this year. According to the data collected from Indian Oil Corporation Ltd.’s (IOC Ltd.) website, retail petrol and diesel prices in India slipped only by only by a meager value of 7 and 8 percent, respectively, during this period. While the fuel prices at the petroleum pumps, though deregulated in India, have remained constant for over a month as the lockdown has brought travel to a standstill.
Two main factors contributing to the gap between current prevailing crude oil prices and the amount consumers pay at fuel stations in India are:
The Indian rupee has depreciated almost 7.6 percent against the U.S. dollar this FY and in part rubbing off profits and gains that could slash away auto fuels even further. Also, oil marketing companies revise petrol and diesel prices every day based on the average crude oil price in the preceding 15 days. So, this brings us to the conclusion that today’s price reflects at the filling pumps after 15 days. After factoring in the weaker rupee and the time lag, Brent is still down by 53 per cent this year, yet, prices of diesel and petrol haven’t dipped as much.
Consumers did not get relief as the central and state taxes amount to a chunk of the fuel prices. For instance, as on April 16 in Delhi, the state govt. share was 21.3 per cent and the central government share amounted for 33 per cent of what a consumer paid per litre of petrol. The division for diesel stood at: Centre constituted 30.2 per cent and for the state, it was 14.8 per cent. Further, with falling crude prices, the central government increased excise duty by Rs 3 each on every litre of petrol and diesel to garner additional revenue of about Rs 39,000. It is the biggest jump in past four years.
On sale of every litre of petrol and diesel, oil marketing companies have also increased gross marketing margins. Higher margins will cushion fuel retailers in recovering losses due to lower fuel demand, one-time inventory loss and weak refining margins caused when market prices fall.
