Petrol, diesel prices up by 80 paise/litre; non-subsidised LPG dearer by ₹50

BL New Delhi Bureau | Updated on: Mar 22, 2022

The Government has restarted fuel price revision after a gap of 137 days.

After a hiatus of 137 days, the oil marketing companies (OMCs) on Tuesday re-started the fuel price revision mechanism by hiking the price of petrol and diesel by 80 paise a litre each, while non-subsidised domestic cooking gas (LPG) became costly by ₹50 per cylinder in line with the uptick in global crude oil prices.

Following the price revision, the rate of petrol, or motor spirit (MS), in the national capital is now ₹96.21 per litre while the revised rates in Mumbai, Chennai and Kolkata stood at Rs 110.81 per litre, ₹102.16 a litre and ₹105.51 per litre, respectively.

Similarly, with a hike of 80 paise in diesel, or high-speed diesel (HSD), the commodity prices in Delhi are now ₹87.47 a litre. The diesel prices in Mumbai, Chennai and Kolkata are now ₹95 a litre, ₹92.19 per litre and ₹90.62 per litre, respectively.

The price of domestic cooking gas cylinders was also raised on Tuesday by ₹50 per cylinder, which means that now a 14.2-kg non-subsidised LPG cylinder will cost ₹949.50 in Delhi. A 5 kg LPG cylinder will now cost ₹349 while the 10 kg composite bottle will come for ₹669. The 19-kg commercial cylinder now costs ₹2,003.50. This is the first hike in LPG cylinder prices since October last year.

Earlier this week, OMCs had raised the price of diesel for bulk buyers by ₹25 per litre. The BusinessLine on March 9th had reported that the price hike in auto fuels is expected to follow the previous daily price revision mechanism and would be in a phased manner.

Price revision

The OMCs had stopped the daily price revision of petrol and diesel since November 5, 2021. This was done as there were assembly elections in five states, including the politically significant Uttar Pradesh and Punjab.

The last revision took place on November 3, 2021, with petrol prices being revised to an all-time high of ₹110.04 a litre and diesel at ₹98.42 a litre in Delhi. The prices in Kolkata, Mumbai and Chennai were higher. A day later, to offer respite to the common man and check rising inflation, the central government reduced central excise duty on petrol and diesel by ₹5 and ₹10 per litre, respectively. Following this reduction, many States also reduced the VAT on petrol and diesel. Domestic petrol and diesel prices are linked to the international costs of the two fuels, which move proportionally to crude prices. The daily price revision mechanism was started in June 2017. OMCs generally revise auto fuel rates daily in line with the average cost of benchmark fuels in the global market in the last 15-days.

Analysts say more price hikes expected

CRISIL Research Director Hetal Gandhi said, “The first hike in fuel prices in five months – by a massive ~₹25 per litre for bulk diesel buyers, and 80 paise at the retail level for petrol and diesel – is unlikely to materially support the marketing margins of oil marketing companies (OMCs).”

Given that the price of crude oil has averaged around $100 per barrel in the current quarter, a full passthrough would require a ₹9-12 per litre increase in the retail prices of petrol and diesel. And if the average crude oil price rises to $110-120, the hike required would be ₹15-20 per litre, she said, adding, “Demand for transportation fuels, however, is likely to remain largely inelastic, supported by the ongoing recovery in economic activity. So if there is no full passthrough, OMCs will continue to be impacted.”

EY India Partner and Leader (Energy) Gaurav Moda said with the global crude prices still in speculative mode, government-to-government alignment on physical contracts has been on the up, at more pragmatic pricing in few cases. This, synced with long crude inventory planning by number of the OMCs have been helping keep the average crude basket for India’s consumption at manageable levels in the short term.

“Having said that, some portion of the commodity price impact is starting to sync into the consumer pricing now. Highest impact of course will be due to diesel, which accounts for more than 50 per cent of transportation fuel in the country and mainly by all the trucks carrying goods across the country, which in turn impact logistics cost and therefore a near direct inflationary pressure across most of the goods we consume. Additional impact will be felt via petrol for vehicle users, LPG especially for the unsubsidised industrial commercial segment, and ATF on airline tickets,” he added.

CRISIL Research Principal Economist Dipti Deshpande said, “The hike in retail prices of petrol, diesel and LPG was on expected lines, and the impact will largely show up in the April inflation number .Retail fuel prices of petrol and diesel have been kept unchanged since November 2021, whereas global crude oil prices rose by close to $30 per barrel during this period.”

The pass-through of rising crude oil prices to domestic fuel prices is, therefore, inevitable, and further hikes can also be expected. CRISIL’s base-case forecast for consumer price inflation, at 5.4 per cent average for FY23, bakes this in. The forecast also assumes Brent crude prices at an average $85-90 per barrel in FY23, she added.

“While lower excise duty relative to last year will help moderate the impact of rising international crude oil prices, it will not be sufficient to lower fuel inflation if Brent prices stay above $90 per barrel throughout next fiscal. In that case, the government may need to cut excise duties further to alleviate the burden on consumers,” Deshpande said.

India’s dependence on oil & gas imports

In FY21, the world’s third-largest oil consumer 85 per cent of its crude oil requirements and 54 per cent of its natural gas requirement through imports from Iraq, Saudi Arabia, UAE, Nigeria and the USA. In FY22 till January 2022, India imported 175.9 million tonnes (MT) of crude oil and 20.22 MT of liquified natural gas (LNG). Russia’s share in crude oil and LNG during this period stood at 0.2 per cent and 1.1 per cent, respectively.

Higher international crude oil prices also mean a higher import bill for India. For instance, the country in April-January of FY22 imported 175.9 MT of crude oil at a whopping $94.3 billion, while during the same period in FY21, import bill stood at $47.2 billion for 163 MT. Similarly, LNG imported during April-January FY22 stood at 26,785 MSCM with a bill of $9.9 billion, whereas during the same period in FY21, India imported 27,679 MSCM of LNG at just $6.2 billion.

High international prices

The Indian basket of crude oil costs $108.25 per barrel at a foreign exchange rate of ₹75.89 per barrel. Global crude oil prices have been witnessing high volatility largely due to the Russia-Ukraine conflict. The second week of March witnessed Brent crude oil scaling $139.13 per barrel, the highest since 2008. The crude oil (Indian Basket) FOB price stood at $126.36 per barrel at an exchange rate of ₹76.92 per US dollar (March 7).

The Indian basket of crude oil is a derived basket of Sour grade (Oman and Dubai average), and Sweet grade (Brent Dated) processed in Indian refineries in the ratio of 75.62:24.38 during FY20.

Published on March 22, 2022
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