Oil cos will decide on retail prices: Govt

It is for state-owned oil marketing companies (OMCs) to revise domestic fuel prices and they would factor in global prices, which have been hovering at record highs, while doing so, said petroleum and natural gas minister Hardeep Singh Puri on Tuesday

Addressing reporters, Puri said the government will ensure that there is no shortage of crude in the country.

“Oil prices are determined by global prices and there is a war-like situation in one part of the world and oil companies will factor that in,” Puri said.

The statement assumes significance as there have been concerns about a sharp rise in domestic petrol and diesel prices, largely unchanged over the last three month despite high global prices, with the conclusion of state polls.

This has been the longest that OMCs have kept prices unchanged since the daily price revision began in June 2017. In the national capital, the retail price of petrol on Tuesday was unchanged at ₹95.41 a litre, while diesel sold for ₹86.67 per litre.

On the other hand, Brent crude on Monday hit $139.13 a barrel, the highest since 2008. The price of Brent was $125.77 per barrel at the time of writing this story. Brent had touched an all-time high of $147.50 a barrel in July 2008.

A research report by HDFC Bank on Tuesday said the rise in global crude oil prices warrant an increase of Rs15- ₹20 per litre in petrol and diesel prices in India. However, it noted that the entire increase was unlikely to be passed on to consumers as the Union government is expected to slash excise duty to provide some relief.

Mint had earlier reported that the government is assessing the evolving geopolitical situation and will decide on cutting excise duty on fuels if the current surge in crude price lingers longer than can be absorbed by state-run fuel retailers. Excise duty on petrol and diesel is currently at ₹27.9 a litre and ₹21.8 per litre, respectively, after the duty cut announced in November last year.

The cost of the Indian basket of crude, which averaged $69.88, $60.47 and $44.82 per barrel in FY19, FY20 and FY21, respectively, averaged $94.07 in February, according to data from the Petroleum Planning and Analysis Cell (PPAC). The average was at $126.32 a barrel as of 7 March. The Indian basket represents the average of Oman, Dubai and Brent crude.

Refuting allegations by the opposition political parties that fuel prices have been stable due to the recently concluded state assembly elections, Puri said, “To say that the revision was stalled due to elections is devoid of the truth.”

Petrol prices were deregulated in June 2010 by the Congress-led United Progressive Alliance (UPA) government. Subsequently, Prime Minister Narendra Modi-led government decontrolled diesel prices in October 2014. While state-run fuel retailers often tend to flatten any sharp spike warranted in petrol and diesel prices by keeping them unchanged during times of high volatility, the government’s stated position has been that it has no role in the pricing.

“I want to assure you that we won't allow any shortage of oil. We will make sure our energy requirements are made, even though our 85% of our oil demand is met through imports,” Puri said.

Recently, India’s petroleum and natural gas ministry said that given the volatility in global oil prices due to escalating hostilities, it is committed to “supporting initiatives for releases from Strategic Petroleum Reserves.”

The surge in global crude oil prices will impact India’s oil import bill and trade deficit. Wholesale inflation will see a larger direct impact than retail inflation because of the higher weight on fuel in the Wholesale Price Index. Petrol and diesel have around 2.5% weight in the Consumer Price Index and 13% weight in the wholesale Index. A ₹1 cut in excise duty on petrol costs the exchequer ₹4,000-5,000 crore, while the same for diesel costs ₹14,000-15,000 crore.

An Icra report recently said that India's current account deficit is likely to widen by $14-15 billion, or 0.4% of GDP, for every $10 barrel rise in the average price of the Indian crude basket.