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Petrol prices in India are set to touch the all-time high level, with a litre of the transportation fuel selling at Rs83.71 in Delhi on Monday.

While the petrol price was increased by 30 paise per litre on Monday, the price of diesel was also increased by 26 paise per litre to be sold at 73.87 per litre in the national capital.Petrol price in Mumbai also touched 90.34 per litre on Monday.

While the coronavirus pandemic has impacted global energy demand, with the announcement of several vaccines being successful, there has been a bounce in international crude oil prices. While Brent was trading at $48.74 per barrel, the West Texas Intermediate was at $45.74 a barrel at the time of writing this story. Every dollar per barrel increase in crude prices increases India’s oil import bill by Rs10,700 crore on an annualized basis.

Petrol had reached an all-time high price of Rs84 per litre on 4 October 2018 in Delhi. The all-time high price of diesel in the national capital was Rs81.94 per litre on 30 July this year.

Rising energy prices will stoke inflation in the world’s third-largest oil importer’ economy, even as the government tries to pull India out from a recession. This has also added pressure on the government to cut taxes on fuel. On top of the refinery gate price of auto fuel, central and state taxes and dealers’ commission are added to arrive at the retail price.

India’s retail inflation based on Consumer Price Index (CPI) has already hit a nearly six-and-a-half-year high of 7.6% in October, with food inflation registering a steep rise.

The cost of the Indian basket of crude, which comprises Oman, Dubai and Brent crude, averaged $56.43 and $69.88 per barrel in FY18 and FY19, respectively. It was $69.88 per barrel in FY 20. With the spread of the pandemic, the price fell to $19.90 in April, $30.60 in May, $40.63 in June, $43.35 in July, $44.19 a barrel in August and $41.35 a barrel in September respectively, according to data from the Petroleum Planning and Analysis Cell. The price was $49.08 a barrel on 4 December.

This comes at a time when India is trying to buffer consumers from the fluctuations in global prices as it is facing recession. The pace of contraction in the Indian economy slowed in September quarter to 7.5% from a historic high of 23.9% contraction in June quarter.

Transportation fuel prices in India have been on an upward trajectory. Retail prices of petrol and diesel in India track global prices of these auto fuels, not crude, although they are broadly linked to crude oil price trends.

The Organization of the Petroleum Exporting Countries (Opec)-plus decided last Thursday to increase the crude oil production by 500,000 barrels per day from January. The decision to gradually return the 2 mb/d to the global market is expected to help India.

The Opec + decision holds significance for India, as Opec accounts for around 40% of global production and 83% of India’s crude oil imports. A low international crude oil price regime has helped India, with India buying crude oil at an average price of $19 per barrel to fill its strategic crude oil reserves.

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