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Reasons for hike in fuel prices

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September 17, 2017

Click here to know more about hike in fuel prices

What has been the trend in fuel prices?

  • On March 2014, the Brent crude price was $ 108.6 per barrel, and petrol cost Rs 73.16 a litre in Delhi.
  • On September 11, 2017, Brent crude was trading at $ 54.2 per barrel but the price of petrol in Delhi was nearly the same as 42 months ago, at Rs 70.30 per litre.
  • Ever since dynamic daily pricing model was implemented, the price of petrol has gone up from Rs 63.09 to Rs 70.39 an increase of 11.6%.
  • Diesel prices have surged similarly, and the trend has been identical in other cities.
  • During this period the Indian basket of crude has gone up 12.5 per cent.

What is the fuel pricing mechanism?

  • The Indian basket of crude oil represents a derived basket comprising Sour Grade (Oman and Dubai average) and Sweet Grade (UK based) of crude oil processed in Indian refineries. 
  • Prices of petrol and diesel have been made market-determined effective June 2010 and October 2014 respectively.
  • Since then, the Public Sector Oil Marketing Companies (OMCs) are supposed to take appropriate decisions on the pricing of petrol and diesel.
  • It must be in line with international product prices and other market conditions such as exchange rate and the demand-supply situation, among others.
  • From June 2017 dynamic daily pricing is being followed.

What are the determining factors of fuel costs?

  • Market factors -The price is determined by the movement of crude oil price (the main raw material), the rupee/dollar exchange rate and demand-supply situation in the market.
  • Excise duty-There was a series of excise duty hikes in the second half of 2015 and the initial months of 2016 on both petrol and diesel to help shore up finances.
  • This has helped the Centre realise higher central excise duties will fetch higher revenues.
  • Oil companies -Oil companies have the pricing freedom and Government has no business interfering in the day-to-day affairs of the companies.
  • At many instance companies buy crude oil at high price and they sell it for low price due to market trends, to match this losses they hike the prices.

 

Source: Indian Express

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