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Will October usher in softer auto fuel prices?

Richa Mishra/Twesh Mishra New Delhi | Updated on September 30, 2019 Published on September 30, 2019

By a rough estimate, a $10 increase in Brent crude oil prices translates to a ₹5 a litre increase in petrol and diesel prices in the country. But, despite, the decline in global prices, retail prices have not fallen in sync domestically.

The impact of the recent drone attacks on Saudi Arabia’s oil processing facilities was not only seen in global energy prices, but on the pockets of consumers back home. The only difference being that while globally prices have returned to previous levels, here they continue to pinch the retail consumers’ household budget.

A look at the price data shows petrol prices have risen by ₹2.45 a litre and diesel by ₹1.96 a litre since September 14 — the day on which Saudi Aramco’s crude oil processing facilities came under a drone attack.

According to data available, auto fuel prices at the retail end continued their uptrend on Monday. The price of petrol in Delhi was ₹74.42 a litre, while diesel was sold at ₹67.33, up from Sunday’s price of ₹74.34 a litre for petrol and ₹67.24 a litre for diesel.

Retail prices vary from state to state, depending on local taxes and levies.

Abundant supply

The fleeting jump in oil prices confirmed the over-abundance of supply as well as the need to reduce the reliance on fossil fuels, according to a briefing note released by The Institute for Energy Economics and Financial Analysis (IEEFA) on Tuesday.

The note – Bombing Saudi Oilfields: The Risk to Collective Action on Climate Change from State-Owned Oil Interests – identifies three key takeaways from the bombings and their aftermath: First, it says that current markets are oversupplied and likely to remain so for the foreseeable future. Second, the flow of oil and cash to governments is more important to political leaders than the flow of blood from armed conflict. And, third, consensus among oil producers to participate meaningfully in climate action is weak at best.

Brent prices, which were at $60 per barrel on Friday, September 13, before the bombing, rose to $68 by Monday, and touched $71 per barrel for a very short time. A week later, by Friday, September 20, Brent prices were back in the $64 per barrel range.

By a rough estimate, a $10 increase in Brent crude oil prices translates to a ₹5 a litre increase in petrol and diesel prices in the country. But, despite, the decline in global prices, retail prices have not fallen in sync domestically. This is because domestic oil marketing companies benchmark auto fuel prices with the price of comparable finished products.

Domestic petrol and diesel prices are calculated with a lag of 15 days, so the tapering down of the crude oil price may reflect in another fortnight here, said an industry player.

“Oil price spikes will ultimately lead consumers to find cheaper alternatives,” says Kathy Hipple a financial analyst at IEEFA.

Hipple added, “Renewable energy is gaining traction globally, and higher oil prices will accelerate this trend.”

Published on September 30, 2019
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