New Delhi: Petrol and diesel prices are likely to rise this week as oil companies are expected to keep rates stable for more than four months ahead of assembly elections in five states, including UP, despite a spurt in international oil prices. Preparing to minimize the damage. At a 13-year high of $140 a barrel.
West Texas Intermediate crude futures, the US oil benchmark, rose to $130.50 a barrel on Sunday evening, the highest level since a July 2008 retreat. International benchmark Brent crude touched an overnight high of $139.13, which is also the highest level since July 2008.
To compound things, the Indian rupee on Monday hit a record low of 77.01 per dollar.
India depends on foreign purchases to meet about 85 percent of its oil requirement, making it one of the most vulnerable countries to high oil prices in Asia.
The double shock of oil prices, already over 60 per cent this year, and a weakening rupee could damage the country’s finances, spark a nascent economic recovery and set inflation on fire.
Industry sources said there is a need for fuel retailers to hike petrol and diesel prices by Rs 15 per litre.
From 2017, fuel prices are to be adjusted daily in line with the benchmark international rate for the last 15 days. But the rates are on freeze since November 4, 2021.
According to information from the Petroleum Planning and Analysis Cell (PPAC) of the Ministry of Oil, the basket of crude oil purchased by India rose above $ 111 a barrel on March 1.
This compares to the average price of Indian basket of crude oil at $81.5 a barrel at the time of the collapse in petrol and diesel prices four months ago.
“With the last phase of polling ending on Monday, it is now expected that the government will allow state-owned fuel retailers to return to daily price revision,” an industry official said.
But the oil companies are not expected to cover the entire loss in one go and they will reduce it – increasing by less than 50 paise per liter every day.
International oil prices have skyrocketed since Russia last month deployed its troops along the Ukrainian border. They escalated after the Central Asian nation was attacked over fears that the conflict in Ukraine or retaliatory Western sanctions might disrupt oil and gas supplies from energy giant Russia.
While Western sanctions have so far kept the energy trade out, the prospect of a complete embargo of Russian oil and products is leading to the latest rally in international oil prices.
Rating agency ICRA said in a report that it expects India’s current account deficit to widen to 3.2 per cent of GDP in 2022-23 if crude oil prices average USD 130 per barrel, the first in a decade. The bar has crossed 3 percent.
“We expect the dollar-rupee cross rate to trade in the range of 76.0-79.0 per US dollar till the conflict subsides,” it said.
The current account deficit (CAD) is expected to widen by $14-15 billion (0.4 percent of GDP) for every $10 per barrel increase in the average price of the Indian crude basket.
ICRA said its baseline forecast is average consumer price inflation and wholesale price inflation at 5 per cent each in FY2023. However, continued hardening of crude oil prices poses an upward risk, unless excise duty is cut to absorb the impact of the same (on retail inflation).
Russia produces a third of Europe’s natural gas and about 10 percent of global oil production. About a third of Russian gas supply to Europe usually travels through pipelines crossing Ukraine.
But for India, the percentage of Russian supply is much less. While India imported 43,400 barrels of oil per day from Russia in 2021 (about 1 percent of its total imports), Russia’s 1.8 million tonnes of coal imports in 2021 accounted for 1.3 percent of all coal imports. India also buys 2.5 million tonnes of LNG annually from Gazprom of Russia.
While supply is a bit of a concern for India at the moment, it is the prices that are a cause for concern.
Domestic fuel prices – which are directly linked to international oil prices as India imports 85 per cent of its oil needs – have not been revised up for a record 123 days in a row.
Rates should be revised on a daily basis, but state-owned fuel retailers IOC, BPCL and HPCL soon froze rates to elect a new government in Uttar Pradesh, Punjab and three other states.
Petrol in Delhi costs Rs 95.41 per liter and diesel costs Rs 86.67. This price is after the reduction in excise duty and reduction in VAT rate by the Delhi government.
Before these tax deductions, petrol price 110.04 per liter and diesel touched an all-time high of Rs 98.42 per litre. These rates were in line with Brent’s peak of $86.40 per barrel on October 26, 2021. Brent was at $82.74 on November 5, 2021, before it started falling and touched $68.87 a barrel in December.
West Texas Intermediate crude futures, the US oil benchmark, rose to $130.50 a barrel on Sunday evening, the highest level since a July 2008 retreat. International benchmark Brent crude touched an overnight high of $139.13, which is also the highest level since July 2008.
To compound things, the Indian rupee on Monday hit a record low of 77.01 per dollar.
India depends on foreign purchases to meet about 85 percent of its oil requirement, making it one of the most vulnerable countries to high oil prices in Asia.
The double shock of oil prices, already over 60 per cent this year, and a weakening rupee could damage the country’s finances, spark a nascent economic recovery and set inflation on fire.
Industry sources said there is a need for fuel retailers to hike petrol and diesel prices by Rs 15 per litre.
From 2017, fuel prices are to be adjusted daily in line with the benchmark international rate for the last 15 days. But the rates are on freeze since November 4, 2021.
According to information from the Petroleum Planning and Analysis Cell (PPAC) of the Ministry of Oil, the basket of crude oil purchased by India rose above $ 111 a barrel on March 1.
This compares to the average price of Indian basket of crude oil at $81.5 a barrel at the time of the collapse in petrol and diesel prices four months ago.
“With the last phase of polling ending on Monday, it is now expected that the government will allow state-owned fuel retailers to return to daily price revision,” an industry official said.
But the oil companies are not expected to cover the entire loss in one go and they will reduce it – increasing by less than 50 paise per liter every day.
International oil prices have skyrocketed since Russia last month deployed its troops along the Ukrainian border. They escalated after the Central Asian nation was attacked over fears that the conflict in Ukraine or retaliatory Western sanctions might disrupt oil and gas supplies from energy giant Russia.
While Western sanctions have so far kept the energy trade out, the prospect of a complete embargo of Russian oil and products is leading to the latest rally in international oil prices.
Rating agency ICRA said in a report that it expects India’s current account deficit to widen to 3.2 per cent of GDP in 2022-23 if crude oil prices average USD 130 per barrel, the first in a decade. The bar has crossed 3 percent.
“We expect the dollar-rupee cross rate to trade in the range of 76.0-79.0 per US dollar till the conflict subsides,” it said.
The current account deficit (CAD) is expected to widen by $14-15 billion (0.4 percent of GDP) for every $10 per barrel increase in the average price of the Indian crude basket.
ICRA said its baseline forecast is average consumer price inflation and wholesale price inflation at 5 per cent each in FY2023. However, continued hardening of crude oil prices poses an upward risk, unless excise duty is cut to absorb the impact of the same (on retail inflation).
Russia produces a third of Europe’s natural gas and about 10 percent of global oil production. About a third of Russian gas supply to Europe usually travels through pipelines crossing Ukraine.
But for India, the percentage of Russian supply is much less. While India imported 43,400 barrels of oil per day from Russia in 2021 (about 1 percent of its total imports), Russia’s 1.8 million tonnes of coal imports in 2021 accounted for 1.3 percent of all coal imports. India also buys 2.5 million tonnes of LNG annually from Gazprom of Russia.
While supply is a bit of a concern for India at the moment, it is the prices that are a cause for concern.
Domestic fuel prices – which are directly linked to international oil prices as India imports 85 per cent of its oil needs – have not been revised up for a record 123 days in a row.
Rates should be revised on a daily basis, but state-owned fuel retailers IOC, BPCL and HPCL soon froze rates to elect a new government in Uttar Pradesh, Punjab and three other states.
Petrol in Delhi costs Rs 95.41 per liter and diesel costs Rs 86.67. This price is after the reduction in excise duty and reduction in VAT rate by the Delhi government.
Before these tax deductions, petrol price 110.04 per liter and diesel touched an all-time high of Rs 98.42 per litre. These rates were in line with Brent’s peak of $86.40 per barrel on October 26, 2021. Brent was at $82.74 on November 5, 2021, before it started falling and touched $68.87 a barrel in December.