Diesel, petrol may get cheaper soon as global prices decline

By: | Published: July 17, 2018 2:48 AM

Diesel and petrol buyers can expect fall in prices in the days to come, thanks to softening freight-on-board (FOB) prices of the fuels in the international market.

The immediate effect was evident on Monday when retail diesel price in New Delhi fell by 14 paise. (PTI)

Diesel and petrol buyers can expect fall in prices in the days to come, thanks to softening freight-on-board (FOB) prices of the fuels in the international market. Over the past four working days, while the FOB price of petrol has fallen from $83.87 per barrel to $79.31, FOB prices for diesel have softened to $82.72 per barrel from $87.73.

The immediate effect was evident on Monday when retail diesel price in New Delhi fell by 14 paise to Rs 68.47 per litre and that of petrol fell by 11 paise to Rs 76.84 per litre. Prices of both fuels have risen daily — except for two days when they remained unchanged — starting July 5, 2018.

According to a ministry of petroleum and natural gas official, prices will come down further as international prices are expected to soften. The state-run oil marketing companies (OMCs) use the last 15-days rolling international product prices to determine domestic prices every day.

A $1 per barrel fall in international product price roughly translates to a reduction of 50 paise per litre cost of diesel and petrol in the domestic market.

OMCs follow trade parity price (TPP) to arrive at the domestic prices. Under the mechanism of TPP, an 8:2 ratio of import and export parity prices of products are used.

Various charges like BS premium, inland freight and delivery charges as also marketing costs and margins of OMCs are added to the TPP — which is also the refinery transfer price or the price at which the refiners sell products to oil marketing firms — to find the price to the dealers, upon which the dealer commission, central excise, and later, state taxes are levied to arrive at the retail prices to the consumers.

Some states levy VAT on the rate inclusive of dealer commission.

However, OMCs — Indian Oil, BPCL and HPCL — enjoy pricing freedom and the final price charged to consumers by the three companies differ and prices vary across retail outlets as well.
All the three firms consider different cost and freight prices of landed fuels.

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