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Monday, January 18, 2021

Explained: Why Are The Prices of Petrol And Diesel Rising

Since India imports most of the fuel required to meet its demands, the prices of petrol and diesel rise in tandem with global prices.

Prices of petrol and diesel haven’t changed for a week by the State-run oil marketing companies for the first time since March, a single barrel of crude oil touched $50 last week. According to the Petroleum Planning and Analysis Cell (PPAC), this rise in the crude oil marketing may put a dent in the marketing margins if not passed on.

Petrol Prices Crossed 90s mark

The petrol prices in Mumbai was at Rs. 90.34 per liter on Monday, while diesel prices were at Rs. 80.51 per liter. Since December 7th, the prices are still the same. Since last week, for the first time since March, prices for the Brent crude oil has touched $50 per barrel.

Crude Oil

For every $1 per barrel rise in the price for crude oil, marketing margins for OMC’s (oil marketing companies) contract by Rs 0.45 per liter, if it isn’t passed on to retail consumers.

If crude oil prices aren’t passed on to the retail consumers, the marketing margins for petrol and diesel is likely to shrink. A senior research analyst at Reliance Securities, last week said: “Rise in oil prices is expected increase cost of operation (fuel cost) of the refineries.”

What are the Analysts talking about?

Yogesh Patil a research analyst at Reliance Securities, last week said: “Rise in oil prices is expected increase cost of operation (fuel cost) of the refineries.”

A senior oil and gas analyst who points out that not everyone shares Yogesh Patil’s concerns stated: “OMCs tend to hold on to price hikes in a politically sensitive situation, similar to the ongoing farmer protests.” Further highlighting OMC’s having considerable cushion to absorb the upcoming hikes in the fuel prices.

The refining utilization of the Indian Oil Corporation, last week was back to 100% in November. According to India rating expectations, marketing margins should be managed at Rs 3 to 5 liter by the OMC’s, despite dynamic changes in crude oil.

Growing Rates of Taxes

Taxes also contribute to a proportionately big amount of fuel prices in India. 63% of VAT and Excise Duty on petrol and 60% of diesel prices in India. Looking at Delhi, when a litre of petrol was last sold for Rs 81.06 on November 19th in Delhi, Rs 51.69 was paid as taxes by the consumers at a liter of diesel for Rs 71.46, consumers paid Rs 42.59 as taxes.

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