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Business News/ Industry / Energy/  Big drop in crude future won’t mean you will pay less for fuel
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Big drop in crude future won’t mean you will pay less for fuel

Negative price means that investors holding the contract were unwilling to take delivery of oil and incur storage costs
  • While fixing prices of petrol and diesel, Indian oil companies consider trade parity pricing
  • Pandemic lockdowns have reduced global crude demand by about a third. (MINT_PRINT)Premium
    Pandemic lockdowns have reduced global crude demand by about a third. (MINT_PRINT)

    MUMBAI : Indian consumers won’t necessarily pay less for petrol or diesel because of the sharp fall in benchmark US crude prices on Monday, said an industry executive.

    For one, the cost of the Indian basket of crude, which is the average of Oman, Dubai and Brent crude, was $20.56 a barrel on 17 April. This is nearly $10 lower than the March price of $35 a barrel, which the government took as an opportunity to raise the excise duty on petrol and diesel by 3 each.

    Though consumers should be benefiting from the fall in international oil prices, the price build of petrol and diesel is such that it does not translate to retail fuel prices.

    “Retail prices of petrol and diesel in India are linked to the prices of these fuels in global markets, not to that of crude oil per se. So, only when these product prices come off, will we see some impact on pump prices in India. Besides, with our tax component still high, consumers may not get the desired relief," said the executive at an oil marketing company on condition of anonymity.

    Despite this, crude, which accounts for about 90% of the cost of these refinery products, is the biggest determinant of the retail price of fuel.

    In fact, for consumers to benefit from the drop in international crude and product prices, state-run fuel retailers Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd had switched to daily price revision from a fortnightly pricing system in June 2018 as the government sought to further pricing reforms in the sector. Crude oil fetched $46.96 a barrel then.

    To set prices of petrol and diesel, Indian oil companies consider trade parity pricing, which is based on the prevailing prices of these products in the international market.

    The pricing formula involves 80% of import price and 20% export price of the fuel. To the trade parity price, other elements like dealer commission, excise duty and value-added tax are added.

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    Published: 21 Apr 2020, 10:18 AM IST
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