Where are fuel prices headed after recent dip?2 min read . Updated: 11 Jan 2019, 08:55 AM IST
Retail prices of petrol and diesel in India track global prices of auto fuels and not crude oil, though they are broadly linked to crude price trends
Retail fuel prices, which touched record highs last year on surging global crude prices and a depreciating rupee, have softened in recent days. Will your fuel bill go lower in the coming months? Mint analyses the decline in prices at petrol pumps.
What are the reasons for the price slump?
There has been a 40% fall in global crude oil prices in the past three months on signs of oversupply due to higher US oil production, fears of slowing global growth and weakening oil demand, besides an all-out trade war between the US and China. The slump in prices is despite US President Donald Trump pulling his country out of a 2015 accord with Iran and the Organization of the Petroleum Exporting Countries (Opec)-led decision to cut crude oil production by 1.2 million barrels a day. However, India on its part, has been able to secure a six-month waiver on importing crude oil from Iran.
What impacts retail fuel prices in India?
Retail prices of petrol and diesel in India track global prices of auto fuels and not crude oil, though they are broadly linked to crude price trends. Also, crude oil accounts for about 90% of the cost of these refinery products. The average price of petrol and diesel in the international market and the US dollar-rupee exchange rate for the previous 15 days are considered while determining domestic prices. The central government is in favour of bringing petroleum products within the ambit of the goods and services tax (GST), but the move requires the approval of the GST Council.
How has the Indian energy basket fared?
The Indian basket of crude cost $56.51 a barrel on 8 January, shows Petroleum Planning and Analysis Cell data. From $80.08 a barrel in October, the average price fell to $57.77 in December 2018.
Where are global crude prices headed?
According to Moody’s Investors Service, oil and natural gas prices will be volatile but range-bound in 2019, with the medium-term price band for West Texas Intermediate crude in the $50-70 a barrel range. This is significant given that India imported 220.4 million metric tonnes of crude in 2017-18. India says it is a price-sensitive customer and will seek reasonable rates as its demand grows. New Delhi has been trying to impress upon Opec, dominated by Saudi Arabia, to maintain supplies as it accounts for around 40% of global production.
How does the crude price fall help India?
Any dip in global crude prices will reduce India’s oil import bill and trade deficit. Every dollar increase in the price of oil raises the import bill by around ₹ 10,700 crore on an annual basis. Imports of oil surged by more than 25% to $109 billion in 2017-18 from the year-ago period. Low prices may help bring down India’s trade deficit and, in turn, its current account deficit. Also, with crude petroleum having a 1.95% weightage in the Wholesale Price Index (WPI), any decrease in the oil price will lower the WPI inflation number.