Economy

Auto fuel prices on pause for 76th day

Shishir Sinha |Rishi Ranjan Kala | Updated on: Jan 20, 2022
Various reports suggest crude prices could soon go as high as $100 a barrel 

Various reports suggest crude prices could soon go as high as $100 a barrel  | Photo Credit: LOIC VENANCE

Global crude prices slip after 7-year high on Wed

New Delhi, January 20

Thursday was 76 th day when prices of petrol and diesel were not revised in four metros on account of change in international crude prices. This is happening despite the fact that international prices have been on fire and touched a seven-year high on Wednesday. Meanwhile, crude prices eased off elevated levels on Thursday, but various reports suggest they could flare up again soon and go as high as $100 a barrel.

Impact of polls

Analysts are divided over the impact of no revision on Oil Marketing Companies (OMCs). Oil companies do not want to comment on the issue. However, it is believed that elections in five poll-bound States is the main reason behind no revision move, a situation which has been observed in the past, too.

Oil marketing companies are ‘authorised’ to revise prices daily depending upon crude prices movement. However, they did it last on November 2, but the very next day, the Centre lowered excise duty followed by VAT (Value Added Tax) reduction by many States, which resulted in revision with effect from November 4. Though, there was one revision in Delhi on account of cutting VAT on petrol by the City State government, but that was only on petrol, and not on the account of crude prices.

In the meantime, as per data from Petroleum Planning & Analysis Cell (PPAC), which works under Oil Ministry, price of the Indian basket of Crude as on January 19 surged to $87.36 a barrel. Another set of data shows average price as $73.30 a barrel in December and $80.64 a barrel in November. The Indian basket of crude oil represents a derived basket comprising of sour grade (Oman & Dubai average) and sweet grade (Brent Dated) of crude oil processed in Indian refineries in the ratio of 75.62: 24.38.

Good or bad news?

No revision in price is good news for the consumer, but what about oil marketing companies? Experts have no common answer to that. Debasish Mishra, Partner & Leader (Energy, Resources & Industrials) with Deloitte says theoretically retails prices are to be revised on a daily basis and are the autonomous decision of OMCs, but often before elections they are frozen. “This leads to under recovery by OMCs in situations of increasing crude prices, just like what is being experienced now. It is also negative for private retailers as they lose market share if they increase prices or make losses like OMCs,” he said.

A blip in global demand

Prashant Vasisht, Vice President with ICRA said that crude lost some value during the Omicron wave, when it was thought that the vaccine’s efficacy would not be enough to counter this variant. Crude had lost $10 in a single day.

But within days it was clear that this was not the case. It just caused a blip in the global demand. The prices of crude were not reduced in India and it recovered. In that sense, right now marketing margins would be compressed, but there would not be a very sharp under recovery.

Not much impact

“The prices of auto fuels, where they are right now will not be very far from the prices that crude would actually command at these levels. I don’t think that the hit on OMCs and private retailers would be very high. When refining margins were very low, they compensated with the marketing margins, which happened last year also. But now refining margins are also healthy so I don’t expect much impact as such,” he said.

Published on January 20, 2022
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