Petrol and diesel prices may rise after having remained steady for more than four months
New Delhi:
Petrol and diesel prices are likely to be hiked this week as oil companies prepare to pare losses accumulated from keeping rates steady for over four months in the run-up to assembly elections in five states, including Uttar Pradesh, despite international oil prices jumping to a 13-year high of $140 per barrel.
Fuel prices need to be increased by Rs 15 a litre for fuel retailers to break even, industry sources said.
West Texas Intermediate crude futures, the US oil benchmark, rose to $130.50 per barrel on Sunday evening, its highest since July 2008, before retreating. The international benchmark, Brent crude, hit a high of $139.13 at one point overnight, also its highest since July 2008.
To compound things, the rupee tumbled to a record low of 77.01 per dollar on Monday.
India relies on overseas purchases to meet about 85 per cent of its oil requirement, making it one of the most vulnerable in Asia to higher oil prices.
The twin blows of oil prices, already up more than 60 per cent this year, and a weakening rupee may hurt the nation’s finances, upend a nascent economic recovery and fire up inflation.
Since 2017, fuel prices are to be adjusted daily in line with the benchmark international rate in the preceding 15 days. But rates have been on the freeze since November 4, 2021.
The basket of crude oil that India buys rose above $111 per barrel on March 1, according to information from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry.
This compares to an average of $81.5 per barrel price of the Indian basket of crude oil at the time of freezing of petrol and diesel prices four months back.
“With the last phase of polling ending on Monday, it is now expected that the government will allow state-owned fuel retailers to return to daily price revision,” an industry official said.
But oil companies are not expected to pass on the entire loss in one go and they will moderate it – raising rates by less than 50 paise a litre every day.
International oil prices have been on the boil ever since Russia put its forces on the Ukraine border last month. They spiked after it invaded the central Asian nation on fears that oil and gas supplies from energy giant Russia could be disrupted, either by the conflict in Ukraine or retaliatory western sanctions.
While western sanctions have so far kept energy trade out, a prospect for a full embargo of Russian oil and products is leading to the latest rally in international oil prices.
Rating agency ICRA in a report said it expects India’s current account deficit to widen to 3.2 per cent of GDP in 2022-23 if the crude oil price averages $130 per barrel, crossing 3 per cent for the first time in a decade.
“We expect the dollar-rupee cross rate to trade in a range of 76.0-79.0 per dollar until the conflict subsides,” it said.
The current account deficit (CAD) is likely to widen by $14-15 billion (0.4 per cent of GDP) for every $10 per barrel rise in the average price of the Indian crude basket.
Russia makes up for a third of Europe’s natural gas and about 10 per cent of global oil production. About a third of Russian gas supplies to Europe usually travel through pipelines crossing Ukraine.
While supplies at the moment seem to be of little worry for India, it is the prices that are a cause of concern.
Petrol costs Rs 95.41 a litre in Delhi and diesel is priced at Rs 86.67. This price is after accounting for the excise duty cut and a reduction in the VAT rate by the Delhi government.
Before these tax reductions, petrol price had touched an all-time high of Rs 110.04 a litre and diesel came for Rs 98.42.
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