Although Petrol and Diesel Prices In India have remained unchanged since May 21 when the central government cut Excise dutyInternational crude oil prices are rising. On May 21, the price of Brent crude was around $110 a barrel, which has now increased to $122 a barrel. Oil marketing companies in India are refraining from aligning the retail fuel prices to the prevailing crude oil prices due to the high inflation already prevailing in the country.
Brent crude oil is currently priced at $122.01 per barrel. Although it cooled to $1.06 a barrel on Friday after higher-than-expected US consumer prices rose and China imposed new COVID-19 lockdown measures, experts say upside risks remain.
Since when are the prices of petrol and diesel unchanged?
Petrol and diesel prices at local fuel pumps are linked to international crude oil prices and the changes should be aligned accordingly on a daily basis. However, oil marketing companies such as BPCL, HPCL and IndianOil have been reducing retail fuel prices since November 2021, when elections were held in five states (including Uttar Pradesh). The retail prices of petrol and diesel were stopped between November 2021 and March 22, 2022 (after the election results were declared).
A report by Moody’s Investors Service in March said state-owned oil retailers in India lost $2.25 billion in revenue from raising pump prices for local elections. After March 22, prices started rising due to costlier crude oil, which pushes inflation. Retail inflation stood at an eight-year high of 7.79 per cent in April.
Prices have been stopped again from April 6 to adjust to the prevailing international crude oil prices. According to a petrol pump dealer, retail fuel prices are currently benchmarked at $85 a barrel against the current rate of around $120 a barrel.
On May 21, when the Center and some states reduced taxes on fuel, the retail prices of diesel and petrol came down. The rates have been on hold since then. Last week, Petroleum Minister Hardeep Singh Puri said oil companies are responsible corporate citizens and the government is not fixing the retail sale price.
Why are crude oil prices rising?
Oil prices tumbled on Thursday, but even after imposing new COVID-19 lockdown measures in parts of Shanghai, hovered near three-month highs, said Mehta Equities Vice President (Commodities) , as strong gains in refined products contributed to the backdrop of the ongoing uptrend for crude. ) Rahul Kalantri.
He said, “Oil prices have been steadily rising over the past two months, leading to a large increase in the prices of refined products due to increased refining supply and increased demand. Peak summer gasoline demand in the United States is the highest demand for crude oil. Prices continue to boost. The US and other nations have been engaged in a series of strategic reserves issuances, but this has so far had limited impact as global crude oil production continues to rise too slowly.”
Will the increase in the price of crude oil in India increase the price of petrol?
The continuous increase in the international crude oil prices is putting pressure on the state-owned oil marketing companies. A Moody’s report in March said the revenue loss for Indian Oil Corporation to cap petrol and diesel rates between November 2021 and March 2022 was $1 billion-$1.1 billion. Therefore, low margins and losses usually force companies to hike prices.
impact on inflation
In the bi-monthly monetary policy of April, reserve Bank of India (RBI) had said that if crude oil prices remain above $100 per barrel, inflation will increase further. In the recent policy review last week, the RBI had assumed international oil price rates at $105 to forecast inflation.
“On the assumption of a normal monsoon and average crude oil price (Indian basket) at $105 per barrel in 2022, inflation is now projected at 6.7 per cent in 2022-23, with Q1 up 7.5 per cent; Q2 at 7.4 percent; Q3 at 6.2 percent; and Q4 at 5.8 per cent, with an equally balanced risk appetite,” RBI Governor Shaktikanta Das said while presenting the monetary policy statement last week.
An increase in the prices of petrol and diesel has a cascading effect on general inflation in the country, as it raises transportation costs across sectors and hence increases the retail prices of produce and commodities, including vegetables.
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