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No immediate plans to revise petrol, diesel prices

Rishi Ranjan Kala | | Updated on: May 18, 2022
The only way right now to comfort the common man is to slash through slashing VAT on fuels by the States

The only way right now to comfort the common man is to slash through slashing VAT on fuels by the States | Photo Credit: SRINIVASAN KV

Record high inflation, weakening Rupee among concerns before the government.

The government has ‘no immediate plans’ to re-start the daily price revision mechanism for auto fuels, as the main concern is to protect the common man. At present, the under-recoveries on petrol have averaged at ₹8–10 a litre, while those on diesel is in the range of ₹25–30 per litre. Fuel prices have not been revised since April 6.

“There are no immediate plans. The government’s main concern is the common man, who should not be burdened unnecessarily. The volatility in global crude oil prices is a mismatch between demand and supply. If prices remain high like they are, then there are fears that the world might enter a recession in two years,” a top source said.

No window

At least in the current fortnight, there is no window available for fuel price revision, at least, due to record high inflation in both the wholesale price index (WPI) and consumer price index (CPI). Another issue is the record weakening of the Rupee against the US dollar. Besides, a cut in excise duty too is not on the cards for now, the source added.

“Excise duty cuts right now are not on the cards. The only way right now to comfort the common man is to slash VAT on fuels by the States. Almost 60 million people consume either petrol or diesel every day. States will have to bear some of the burden,” the source said.

The source said that despite the high under recoveries of the oil marketing companies (OMCs), the companies are diversifying, which is helping them pare some of the losses. “They are diversifying into businesses such as petro-chemical hubs, green hydrogen, etc., which going ahead will help them shore up profits as India alone will be a huge energy market besides exports,” the source explained.

Recession woes

Another source said that if crude oil prices keep rising like they have in the past 2-3 months, there are fears of a recession. Besides, it could also lead to demand destruction as many end consumers, especially households, will cut down on their fuel bill.

“The idea is to explore a balanced approach where auto fuel fits the pocket of the common man and, at the same time, the OMCs are also able to make profits,” he added.

According to Motilal Oswal in a report on May 16, the discontinuation of fuel price revision has resulted in losses of ₹8.8 a litre and ₹12.9 per litre at prevailing rates on petrol and diesel at present, respectively. A change of $1 a barrel in the benchmark petrol/diesel price makes an impact of 48 paise per litre on margin.

“However, a record high gross refinery margin (GRM) of more than $20 per barrel in the past few weeks has somewhat pared the profitability risk from the marketing segment. Supply disruption in Russia and the lower export of petroleum products from China have been the genesis of such high GRMs. Gasoline and diesel cracks stood at $25.6 a barrel and $37.1 per barrel in the past two months against $11.5 and $9.7 per barrel in FY22, respectively,” it added.

Published on May 18, 2022
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