Even as production cuts by OPEC+ countries fuelled an upward rally in international crude oil prices, the domestic oil marketing companies (OMCs) are not expected to increase the retail prices of petrol and diesel immediately.

A top source said the government will adopt a “wait and watch” policy as the current situation is “quite fluid” with many factors at play.

“OPEC cuts seem timed with the US banking crisis and subdued global industrial output propelling Brent to drop to $67-68 levels last month. So, OPEC announced its second cut, with the first (since Covid 2020) effected in November 2022. So, prices firmed up again. We should ideally wait to analyse the effects of China’s re-opening before taking a decision on prices,” the official said.

Besides, raising prices of auto fuels also has an implication on inflation, which at present with high prices of food commodities is still a concern for the government, he added.

Also read: BL Explainer: What will be the impact of OPEC’s sudden oil output cut

A senior official with an oil marketing company (OMC) said that refiners have been able to make up their losses in the last six months due to sourcing of cheaper Russian oil, but there is still some “cash loss” on diesel.

“To cut retail prices, ideally, Indian basket should be under $75 per barrel. Right now it is in the range of $84-86 per barrel with volatility expected. I don’t think Finance Ministry will push for a price revision right now,” he added.

The last price revision for petrol and diesel happened on April 6, 2022. Besides, the government also cumulatively cut the excise duty by ₹13 per litre and ₹16 on petrol and diesel, respectively, during November 2021 and May 2022.

Inflationary pressure

After the April 2 OPEC production cuts, the International Energy Agency (IEA) on April 3 said “Forecasts by the IEA and other relevant institutions, representing consumers and producers alike, all indicate that global oil markets were already set to tighten in the second half of 2023, with the potential for a substantial supply deficit to emerge. The new OPEC+ cuts risk exacerbating those strains and pushing up oil prices at a time when strong inflationary pressures are hurting vulnerable consumers around the world, especially in emerging and developing economies.”

Also read: India, China to command big chunk of energy resources, including oil, by 2045: OPEC

ICRA VP & Co-Head (Corporate Ratings), Prashant Vasisht said, “Since imports contribute to around 85 per cent of India’s total demand, an increase in crude prices increases the import bill and weakens the rupee against the US dollar. However, upstream companies are expected to benefit owing to higher profits and cash accruals though a large part of the same is likely to be shared with the government in the form of special additional excise duties. The downstream sector would be adversely impacted, and OMCs may start incurring marketing losses on the sale of diesel.”

Indian basket

The production cut by OPEC, around 1.16 million barrels per day, will begin in May 2023 till end-2023. Also, Russia announced a cut of 500,000 BPD. Subsequently, the price of the critical commodity, which fell to $67-68 in March, has risen to $85 a barrel levels.

The Indian basket crude oil free on board (FOB) price stood at around $77.84 per barrel on March 29 appreciating to $78.30 on March 31. After the production cut announcement by OPEC, the Indian basket price has risen to $85.11 a barrel on April 5.

Also read: Petrol prices rose 33.85%, diesel 61.51% during May 2014-Dec 2022: Oil Minister

For comparison, in FY23, the average price of crude oil basket was $93.15 per barrel, which is the fourth highest in the last 23 years barring FY11 ($111.89 a barrel), FY12 ($107.97), and FY13 ($105.52).

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