Retail fuel prices to be linked with global trend

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No oil price hike immediately, says Deora

New Delhi: The government plans to deregulate retail fuel prices and to link them to global crude oil, a move that may help it cut petrol and diesel prices for the second time in a month.

“The more important thing is to link pricing to what is happening in the international markets, which means we will keep giving the benefit of lower prices to the consumers,” Montek Singh Ahluwalia, deputy chairman of Planning Commission, told Bloomberg News.

Crude oil prices for February delivery rose as much as 5.1% to $48.68 a barrel in after-hours trading on the New York Mercantile Exchange.

However, oil reversed early gains on Monday to fall towards $46 a barrel by 1310 GMT as investors booked profits following crude’s 25% rise since late December on Israel’s incursion into Gaza and the Russian gas dispute. Oil prices have risen sharply from around $35 a barrel since Israel launched its Gaza offensive on Dec. 27, heightening geopolitical fears in the Middle East.

Arguing that domestic fuel prices should be linked to international prices, Ahluwalia said the prices should rise when global prices go up. India depends on imports for more than 75% of its energy needs.

“There would be a systemic shift and as and when the prices go up, local prices will also need to be adjusted,” Ahluwalia said. “We are pushing. That’s what the government should do and I hope the government will make an announcement to that regard soon,” he told Bloomberg.

Freeing oil prices from state control would help oil marketing companies pare revenue losses, although it could expose consumers to greater volatility in fuel prices. The government sets oil prices in order to cushion the poor from rising fuel prices. The Centre has been giving bonds to oil companies to compensate them for losses they incurred for selling oil below cost in the good part of 2008.

The government gave Rs 22,000 of bonds to oil companies in December, with the largest refiner Indian Oil getting Rs 12000 crore. The government is yet to decide on bonds to be given to the refiners as compensation for selling fuels below cost in the year to March, oil secretary R.S. Pandey on Monday. Reduction in global oil prices has helped oil companies pare their losses.