Petrol is a necessary commodity, primarily for transportation - be it commercial or for personal use. The price of petrol charged at gas stations is the retail price of petrol that the consumer must pay. Petrol prices are set by state-owned Oil Marketing Companies (OMCs) such as Bharat Petroleum, Indian Oil, and Hindustan Petroleum, and are overseen by the PPAC (Petroleum Planning and Analysis Cell), which is part of the Ministry of Petroleum and Natural Gas. In India, petrol prices are revised daily, with the price change taking effect at 06:00 a.m. every day. This ensures that even minute variations in global oil prices are communicated to fuel users and dealers. The price of petrol (per litre) in India today is ₹106.31.
Dynamic Fuel Pricing
As of June 2017, petrol prices in India are revised on a daily basis, a concept known as the dynamic fuel price method. Every day at 6:00 a.m., the price of petrol and diesel is revised. Prior to this, prices were revised every two weeks. The price of petrol is affected by a number of factors. These include the rupee-to-US-dollar exchange rate, crude oil prices, global cues, fuel demand, and so on. When international crude oil prices rise, so do Indian prices. The price of petrol includes excise duty, VAT, and dealer commission. The rate of VAT varies by state. When excise duty, dealer commission, and VAT are added, the retail selling price of petrol nearly doubles. Fuel prices are revised on a daily basis under this system, taking into account global crude oil prices and currency conversion rates. In India, the system is used in 58,000 petrol bunks. The system improves transparency and addresses the complexities associated with the previous fortnightly revision. It allows fuel users to pay market-determined prices regardless of the impact. There are two types of petrol bunks: automated, which automatically change rates without human intervention, and non-automated, which require manual revision.
Effect of Changing Petrol Prices on Daily Life
The importance of petrol and other fuels in our daily lives is growing. As the population grows, so does the number of vehicles. A rise in the price of petrol usually has a cascading effect on prices of other commodities too, impacting daily lives of the poor.
- Oil Production and Exploration Companies: These companies are responsible for producing and exploring crude oil. Cairn India, Reliance Industries, Oil and Natural Gas Corporation (ONGC), and Oil India are among the major players in this segment. Only 25% of the country's oil requirements are met by these companies, with the remainder imported.
- Oil Refineries: Oil Refineries are responsible for the transformation and refining of crude oil into a variety of petroleum products - petrol, diesel, kerosene, LPG, etc. Reliance Industries Ltd, Nayara Energy Ltd, and Bharat Petroleum Corporation Ltd are major players in this segment.
- Oil Marketing Corporations (OMCs): Oil Marketing Corporations are responsible for the marketing, sale, and distribution of petroleum and petroleum products to dealers and businesses. Companies in this segment include Reliance Industries, Essar, Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Private Corporate.
- Dealers: Individuals or businesses that own petrol bunks are referred to as dealers. They sell petrol to end users after deducting their profit margins and taxes.
Components of Petrol Prices in India
The following are the components of Petrol Prices in India:
- Cost of Crude Oil and Freight Charges
- Refinery Transfer Price (Refinery Transfer Price or RTP is the cost incurred by OMCs to convert crude oil into refined petrol.)
- OMCs Profit Margin
- Central and State Taxes
- Dealer's Commission
Factors Affecting Petrol Prices in India
- Cost of Crude Oil: Changes in the price of crude oil in the international market have a direct impact on the price of crude oil in the domestic market; this is one of the most important factors causing an increase in petrol prices in the Indian domestic market. Increased international demand, low production rates, and any political turmoil in the world's crude oil-producing countries all have a significant impact on petrol prices.
- Increased Demand: Economic growth in India and other developing countries pushes increased demand for petrol and other essential fuels. The number of people who own private vehicles has increased in recent years, contributing to an increase in demand for petrol in India, resulting in a rise in petrol prices in India.
- Mismatch in Supply and Demand: When supply increases, the price of petrol decreases, and vice versa. Oil refining and marketing companies usually keep crude oil inventory for up to six weeks, which affects the price of petrol and petroleum products.
- Rupee to Dollar Exchange Rate: The rupee-dollar exchange rate is another major factor influencing petrol prices in India. Indian oil companies pay in dollars for oil imported from other countries, but their expenses are in rupees. As a result, when crude oil prices fall but the rupee falls against the dollar, the gains to oil refiners are reduced. On the other hand, when the rupee strengthens against the dollar and the price of crude oil falls, oil companies benefit.
- Refinery Consumption Ratio: RCR is a critical consideration. When OMCs import crude oil, it is delivered to refineries for further processing. A lower refinery consumption ratio results in a lower quantity of refined petrol for sale, raising the price of petrol.
- Tax Rates: The prices of petrol and other petroleum products vary depending on local government policies that impose fuel taxes. When the government of India raises fuel tax rates, oil companies in India raise the price of petrol to recover losses and maintain marginal profits in the Indian oil business.