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Raghuvir Srinivasan

Chennai, Oct. 17 International crude oil prices are in a free fall. The Indian basket of crude oil, valued at $62.86 a barrel on Friday, is very close to the average price last seen in March 2007.

So, is it time to expect a reduction in domestic retail prices of products such as petrol, diesel and aviation turbine fuel (ATF)? Not if we go by the logic that has been driving domestic fuel pricing all these years, say oil companies.

This is how it works. Oil companies price their products based on the average crude oil prices of the preceding month. This applies especially to free-pricing products such as ATF and naphtha. For today’s pump prices, the relevant crude oil price is the average of September, which was $96.81 a barrel for the Indian basket.

The petrol that you tanked up today was refined from crude oil bought at that average price.

Oil companies, therefore, say that there is no scope for a reduction now even if today’s crude oil price is at $62.86 a barrel.

So, when can we expect a reduction? A top official of an oil company says that average monthly price of the Indian basket has to touch $61 a barrel before a reduction in retail prices can be considered. The depreciation in the rupee vis-À-vis the dollar is built into this threshold price.

It is interesting to see what the retail product prices were like in March 2007 when the Indian basket price was at about the same level as Friday. ATF, which is priced on market levels, was at Rs 34,618 a kilolitre in March 2007 which is 63 per cent lower than the prevailing Rs 56,447 a kilolitre (Delhi price).

Petrol was 18 per cent lower at Rs 42.85 a litre while diesel was 15 per cent lower at Rs 30.25 a litre. Pressure could build on oil companies to review prices if global oil prices either hover at the same level or drop further over the next fortnight.

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