India’s state-run oil marketing companies plan to revise retail fuel prices everyday to better shield themselves from volatility in global crude oil prices, beginning with five cities across the country before implementing the mechanism nationwide.
India’s state-run oil marketing companies plan to revise retail fuel prices everyday, beginning with five cities across the country, to better shield themselves from volatility in global crude oil prices. The three state-run fuel retailers plan to roll out a pilot from May 1 in the cities of Puducherry and Vizag in southern India, Udaipur in the West, Jamshedpur in the East and Chandigarh in the North, before implementing the mechanism nationwide, Reuters reported citing unidentified sources.
At present, the three state-run oil marketing firms – Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp – review retail fuel prices periodically and usually revise them every fortnight to pass on the impact of global crude oil prices on their purchases. However, they have skipped the revision for the past three months, last revising the prices on January 15.
Since these three companies together control the bulk of the fuel retail market with over 90% of the operational outlets between them and hence practically set the benchmarks in fuel pricing, the private fuel marketers Reliance Industries and Essar Oil, who have most of the remaining market, will likely soon follow suit.
The daily price change practice, commonly followed in many developed countries, is called dynamic fuel pricing. It is a practice in which the companies change the prices of petrol and diesel every day, based on crude price movements and don’t have to wait for a fortnightly review to adjust the prices.
You may also like to watch:
The proposed move will allow the oil companies to align their retail prices more closely with the crude prices and will help them in tapering their losses, as currently, the oil companies are vulnerable to fluctuations in currency and crude oil prices over the 14-day cycle of retail price adjustment. This shift in pricing practice will also help in predicting their margins more accurately.
IOCL, BPCL and HPCL are believed to be actively exploring ways to successfully implement this practice, with the executives having also reportedly met Oil Minister Dharmendra Pradhan and the ministry officials earlier this month to discuss the idea of daily fuel pricing.
The introduction of daily price revision mechanism will likely propel Indian retail fuel market to the international standards. This move will also allow private competitors, Essar Oil and Reliance Industries, which currently follow the price set by state-owned companies, to also shift to a dynamic model.
Global crude oil prices started rising since November-December on the talk of world’s major oil producers contemplating a cut in output. Oil has mostly traded above $50 a barrel since OPEC and 11 other countries started trimming supply in January.
The rise in prices was recorded after Saudi Arabia said 80% of the agreed cuts have been achieved since the deal became effective on January 1, with the OPEC’s efforts to limit the supply bearing fruit. However, India’s oil marketers continued to sell retail fuel at the same levels as in January since they did not revise the prices after that.