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Petrol and diesel prices could rise by Rs 15 per litre: experts

by Nick Erickson
March 7, 2022
in Business
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Gasoline and diesel prices may rise after being stable for more than four months

New Delhi:

Petrol and diesel prices are likely to increase this week as oil companies prepare to offset losses incurred by holding rates stable for more than four months ahead of parliamentary elections in five states, including Uttar. Pradesh, despite bringing international oil prices to a 13-year high of $140 a barrel.

Fuel prices need to be increased by Rs 15 per liter to keep fuel retailers at break even, industry sources said.

West Texas Intermediate crude oil futures, the US oil benchmark, rose to $130.50 a barrel Sunday evening, the highest since July 2008, before pulling back. The international benchmark, Brent oil, at one point hit a high of $139.13, also the highest since July 2008.

To complicate matters, the rupee fell to a record low of 77.01 per dollar on Monday.

India relies on overseas purchases to supply about 85 percent of its oil needs, making it one of the most vulnerable in Asia to higher oil prices.

The double whammy of the oil price, already up more than 60 percent this year, and a weakening rupee could hurt the country’s finances, disrupt a budding economic recovery and fuel inflation.

Since 2017, fuel prices are adjusted daily in the past 15 days according to the international reference rate. But since November 4, 2021, the rates have been frozen.

According to information from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry, the basket of crude oil that India buys rose above $111 a barrel on March 1.

This compares to an average price of $81.5 per barrel of India’s crude oil basket when petrol and diesel prices froze four months ago.

“With the final phase of the polls ending on Monday, the government is now expected to allow state-owned fuel companies to return to daily price revisions,” an industry official said.

But oil companies aren’t expected to pass on the entire loss at once, and they will moderate it — raising rates by less than 50 paise per liter per day.

International oil prices have been boiling since Russia deployed its troops on the border with Ukraine last month. They peaked after it invaded the Central Asian nation over fears that energy giant Russia’s oil and gas supplies could be disrupted, either by the conflict in Ukraine or by retaliatory sanctions by the West.

While Western sanctions have so far kept energy trade out, a prospect of a complete embargo on Russian oil and products is leading to the latest surge in international oil prices.

Rating agency ICRA said in a report it expects India’s current account deficit to widen to 3.2 percent of GDP in 2022-23 if the price of crude oil averages $130 a barrel, marking the first time in ten years will exceed 3%.

We expect the dollar-rupee cross rate to remain in the range of 76.0-79.0 per dollar until the conflict subsides.

The current account deficit (CAD) is likely to widen by $14-15 billion (0.4 percent of GDP) for every $10 a barrel increase in the average price of the Indian crude oil basket.

Russia accounts for a third of Europe’s natural gas and about 10 percent of global oil production. About a third of Russian gas supplies to Europe usually go through pipelines that cross Ukraine.

While supply is of little concern to India at the moment, it is prices that are of concern.

Petrol costs Rs 95.41 per liter in Delhi and diesel costs Rs 86.67. This price is after taking into account the excise duty reduction and a reduction in the VAT rate by the Government of Delhi.

Before these tax cuts, the petrol price had reached a record high of Rs 110.04 per liter and diesel came in at Rs 98.42.

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