All that oil companies need to do is to hike petrol price by 3 paise and it will the second highest level witnessed ever in India’s history — unless central or state governments intervene. And it’s not a choice, really. They might have to, sooner or later, as international crude oil prices are rallying. Moreover, global oil czars are expected to stop at nothing unless they push it to $100 a barrel, up by over $25 a barrel from current levels.
Petrol price in Delhi on Thursday was up 5 paise at Rs 74.7 per litre, just 3 paise below the second highest level recorded on September 1, 2013 in the capital. In Delhi, petrol price had hit an all-time high of Rs 76.06 on September 14, 2013. Those days, benchmark crude oil prices were hovering at about $110 a barrel.
The global scenario
International crude oil prices started falling in 2013 after hitting a high of $115 a barrel, and slumped to as low as $28 a barrel before beginning to rise again. Until October 2017, the Brent price remained below $60 a barrel — a comfortable level for most countries including India. Since October 2017, the Brent price began surging above $60, hitting $70 mark in mid-January. It has now risen to $74.02 a barrel.
The biggest reason for the rise in oil prices is production cuts by Organization of the Petroleum Exporting Countries (OPEC) and also by non-members countries led by Russia. Reuters reported citing two industry sources that Saudi Arabia seeks oil price as high as $100 a barrel.
What’s happening back home
In 2010, petrol prices were deregulated and since June 16, 2017, oil companies are revising prices daily. When international crude oil prices began falling, the government raised excise duty on both petrol and diesel.
Last year, in October 2017, when international crude oil prices began rising, the government announce an excise duty cut of Rs 2 per litre on both petrol and diesel and also requested state governments to cut retail VAT. However, only four states announced VAT cuts, of which, three were BJP-ruled states and one was poll-bound.
But now that the international crude oil prices are not showing any sign of stabilising, the government seems to be non-committal in cutting excise duty any further, understandably due to the tight fiscal situation.
Fuel prices can be brought down if oil companies decide to absorb the hike at their own expense — but why would they? The central government could cut excise duty but at the cost of fiscal deficit target. State governments could cut retail VAT but they too seem non-committal in doing so. So what’s ahead is rising petrol and diesel prices — unless there is some international activity to neutralise the production cut plan.