Why are prices of petrol and diesel in India not falling?

19 Aug 2022 , 09:56 AM

Although local retail prices for gasoline and diesel have not changed, global crude oil prices have dropped to a six-month low. This may be due to the fact that Indian fuel retailers break even on gasoline but continue to lose money on diesel.

Brent, the most widely used benchmark for crude, was trading at $94.91 a barrel on Thursday after falling to a six-month low of $91.51 the day before due to worries about a worldwide recession.

Prior to a few months, when worldwide crude oil prices were rising, Indian fuel dealers were losing between Rs20 and 25 per litre on diesel and between Rs14 and Rs18 per litre on petrol. The decline in oil prices has reduced these losses. Diesel under-recovery is currently Rs4-5 per litre.

The retail price of gasoline and diesel must be adjusted daily by oil firms in accordance with cost. However, they did so starting on November 4, 2021, shortly before elections in states like Uttar Pradesh, for a record 137 days.

When the previous freeze expired on March 22 of this year, prices increased by Rs10 per litre in just over a fortnight before a fresh freeze started on April 7.

In the national capital, a litre of petrol presently costs Rs96.72 and a litre of diesel Rs89.62. As the government reduced excise duty to lower prices, this is a decrease from the Rs105.41 per litre of petrol and Rs96.67 per litre of diesel prices on April 6.

To assist the government in controlling inflation, which had already soared to a multi-year high, oil companies did not revise prices. If the cost of gasoline and diesel had been raised, it would have increased even more.

However, the freeze resulted in a combined net loss for the three major oil merchants in the June quarter of Rs18,480 crore.

Diesel was deregulated in November 2014, and gasoline in June 2010. Since that time, the government has stopped providing oil companies with any subsidies to make up for any losses they may have suffered from selling petroleum below cost.

The invasion of Ukraine by Russia on February 24 shocked the world's energy markets. As sanctions were placed on Russia's major exports by the international community, initial price spikes developed into persistent price increases. Before the invasion, Brent was trading at $90.21 per barrel. On March 6, it reached a 14-year high of $140.