Global oil prices at 6-month low, but why petrol & diesel prices are not declining in India?

Global crude oil prices have declined to a six-month low, but the domestic retail prices for petrol and diesel have registered no such changes. This may be because Indian fuel retailers have breakeven on petrol but they still continue to lose money on diesel. The world's most-used crude benchmark, Brent was trading at $94.91 per barrel on Thursday after concerns of a global recession led to it slipping to a six-month low of $91.51 on the previous day.

During the period of rising international crude oil prices few months ago, Indian fuel retailers were losing Rs 20-25 per litre on diesel and Rs 14-18 a litre on petrol. These losses have been trimmed with the fall in oil prices. Under-recovery on diesel is now down to Rs 4-5 a litre.

"There are no under-recovery (losses) on petrol now. For diesel, it will take some time to reach that level," PTI quoted an official as saying.

But this is unlikely to translate into an immediate reduction in rates as oil companies will be allowed to recoup losses they had accumulated on selling fuel at below cost in the last five months, another official said.

State-owned fuel retailers IOC, Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) have not revised retail selling price of petrol and diesel in line with the international costs for four and half months now to help the government manage runaway inflation.

Oil companies are supposed to revise the retail price of petrol and diesel daily in line with cost. But they froze rates for a record 137 days beginning November 4, 2021, just as states like Uttar Pradesh went to polls.

That freeze ended on March 22 this year and rates went up by Rs 10 per litre each in just over a fortnight before a new freeze came into effect from April 7.

Petrol currently costs Rs 96.72 a litre and diesel Rs 89.62 in the national capital. This is down from Rs 105.41 a litre price on April 6 for petrol and Rs 96.67 a litre for diesel as the government cut excise duty to cool rates.

The Rs 10 a litre increase, effected between March 22 to April 6, wasn't sufficient to cover the cost and the new freeze meant accumulation of more losses, officials said.

Oil companies did not revise rates to help the government manage inflation which had already peaked to a multi-year high. It would have further spiked if petrol and diesel prices were increased in line with cost.

Last week in Panipat, Oil Minister Hardeep Singh Puri described the state-owned fuel retailers as "good corporate citizens" for not increasing the prices.

But the freeze meant that the three retailers post a combined net loss of Rs 18,480 crore in June quarter.

Petrol was deregulated in June 2010 and diesel in November 2014. Since then, the government does not pay oil firms any subsidy to compensate them for losses they might incur on selling fuel at rates below cost.

So, the oil companies recoup losses when input costs fall, the first official explained.

Russia's February 24 invasion of Ukraine sent shock waves through global energy markets. Initial price spikes turned into lingering price rises as the global community imposed sanctions on Russia's key exports. Brent was at $90.21 per barrel before the invasion and rose to a 14-year high of $140 on March 6.

Some of the heat has come out of oil markets in recent weeks on fears of a recession snipping away demand.

The basket of crude oil that India imports averaged $91.45 per barrel on Wednesday, official data showed.

It had averaged $102.97 in April, before rising to $109.51 in the following month and $116.01 in June.

Prices started to fall in July when the Indian basket averaged $105.49 a barrel. It averaged $97.19 in August.

(Inputs from PTI)