1. Petrol, diesel prices reach 3-year high: What you should really know about the sharp surge

Petrol, diesel prices reach 3-year high: What you should really know about the sharp surge

Petrol and diesel prices have been surging sharply since June 16 after the dynamic daily pricing model for these fuels was introduced. Fuel prices have reached their highest in nearly three years now.

By: | New Delhi | Published: September 15, 2017 12:13 PM
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Petrol and diesel prices have been surging sharply since June 16 after the dynamic daily pricing model for these fuels was introduced. Fuel prices have reached their highest in nearly three years now. Oil minister Dharmendra Pradhan has remained non-committal and maintained that the government does not plan to intervene and control the prices. He asserted that a cut in excise duties is “up to the Finance Ministry,” according to the Indian Express. The opposition Congress accused the Modi government of meting out “step-motherly treatment” to the common man by raising petrol prices even as global crude oil prices were on the decline, as per PTI. But where do things really stand? Find out.
Here is what has been the trend of fuel prices?

A couple of months before the Modi government assumed the office on March 1, 2014, Brent crude price was USD 108.6 per barrel, and the cost of petrol was Rs 73.16 a litre in Delhi. However, Brent crude is trading at USD 54.2 per barrel on September 11, 2017, and the price of petrol in Delhi remained nearly the same that was 42 months ago, at Rs 70.30 per litre. Coming to the impact of the exchange rate, the rupee was trading at 61.76 against the US dollar on March 1, 2014 while on September 11, 2017 it was 63.90. Therefore, the impact of rupee versus dollar is largely neutral during this period, the report said.

The dynamic daily pricing model has come in for flak because, ever since it was implemented, the price of petrol has shot up to Rs 70.39 on September 14 from Rs 63.09 in July which is an increase of 11.6%.
Here is how the Indian crude basket calculated?

The crude oil basket comprises of Sour Grade (Oman and Dubai average) and Sweet Grade (Brent Dated) crude oil processed in Indian refineries (in the ratio of 71.03:28.97). The prices of petrol and diesel were determined by the market since June 26, 2010, and October 19, 2014, respectively. Since then, the Public Sector Oil Marketing Companies (OMCs) are supposed to take appropriate decisions on the pricing of petrol and diesel. Again, from June 16, 2017, the dynamic daily pricing was introduced, according to the Indian Express.

What explains the divergence in the movements of the crude basket and of retail prices?

The NDA government resorted to a series of excise duty hikes in the second half of 2015 and the initial months of 2016 on both petrol and diesel to help shore up finances. The Centre realised higher central excise duties (total estimated revenue from the taxes on fuels this fiscal, including cess on crude oil, additional excise duty on motor spirit and diesel and SAD on motor spirit is about Rs 1,15,000 crore), primarily through the increased tax on petrol and diesel, as per IE.
What are the other things or variables involved in determining the prices?

The price is not only determined by the international movement of crude oil price, but also by the exchange rate i.e rupee vs dollar and the demand-supply situation in the market. Price increases when there is a deficit of the product it decreases with an increase in supply. Over the first nine months of the calendar year 2017, the global crude oil price for the Indian basket fell by 0.44% while the price of petrol (in Delhi) came down by 0.3%. This is despite the fact that the rupee strengthened against the dollar by nearly 7%, which has translated into cheaper import of oil, as per IE
Here is how the government is justifying the excise duty hikes?

Oil minister Dharmendra Pradhan has defended the higher duty saying increased revenue was only going into welfare activities of building more roads, and providing irrigation and drinking water facilities. He said oil companies would continue to have pricing freedom.

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