As demand eased amid recession worries, the price of international Brent crude fell below $90 a barrel last week for the first time since early February. After recovering, it is now trading at $92.84 per barrel, the lowest price in the previous six months.
Despite positive developments, such as Russia’s decision to shut down the North Stream pipeline and production cuts by the producer cartel OPEC and its partners (OPEC+), prices fell.
However, this has not led to any changes in the retail prices of petrol and diesel in India, which have remained frozen for a record 158 days.
Oil Minister Hardeep Singh Puri tried to link the lack of a review to losses incurred by state-owned fuel retailers from keeping interest rates as international oil prices hit multi-year highs in a response to reporters’ questions on the lack of a review on Friday.
“When (international oil) prices were high, our (petrol and diesel) prices were already low,” he said. “Have we recovered all our losses?” he continued to ask.
However, he did not comment on the losses experienced by keeping rates unchanged after April 6.
The average price of crude oil purchased by India on September 8 was $88 per barrel. Its monthly average had been $102.97 in April before rising to $109.51 in May and $116.01 in June. In July, when the Indian basket averaged $105.49 per barrel, prices began to decline. It averaged $97.40 in August and $92.87 in September so far.
Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), three state-owned fuel retailers, have not been allowed to exercise their right to increase the retail price of petrol and diesel. at international prices for more than five months.
When oil prices rose internationally, they used to lose Rs 20-25 on every liter of diesel and Rs 14-18 on every liter of petrol. The drop in oil prices has reduced these losses.
“There is no underperformance (losses) in petrol now. It will take some time for diesel to reach that level,” the official said.
However, since oil companies are allowed to recover losses accumulated by selling fuel below cost over the past five months, this is unlikely to lead to an immediate drop in prices, according to another official.
Puri had said on Friday that to get a respite, the price of crude oil must remain at or fall below $88 per barrel.
Since imports cover 85% of India’s oil needs, the development of international markets directly affects the retail prices of pumps.
IOC, BPCL and HPCL are tasked with updating cost-based revisions to retail prices of petrol and diesel. However, they did so from November 4, 2021, shortly before elections in states like Uttar Pradesh, for a record 137 days.
When the previous freeze ended on March 22 this year, prices rose from Rs. 10 per liter in just over two weeks before the new freeze started on April 7th.
Petrol currently costs Rs 96.72 per liter and diesel Rs 89.62 per liter in the capital. This is down from Rs 105.41 per liter for petrol and Rs 96.67 per liter for diesel on April 6, when the government cut excise duty to cooler levels.
A 10-rupee per liter price hike between March 22 and April 6 was not enough to cover costs, and the new freeze meant more losses, officials said.
To help the government control inflation, which had already peaked for several years, oil companies did not revise prices. If the price of petrol and diesel had been increased, it would have gone up even more.
Due to the freeze, the three retailers reported a total net loss of Rs 18,480 crore for the June quarter.
Diesel was deregulated in November 2014 and gasoline in June 2010. Since then, the government has stopped providing subsidies to oil companies to compensate for losses they may have suffered from selling oil at a discount.
So when input costs go down, oil companies will make up for their losses, the first official said.
Russia’s attack on Ukraine on February 24 shook the world’s energy markets. When the international community imposed sanctions on Russia’s major export products, the initial price increases developed into continuous price increases. Before the attack, Brent traded at $90.21 per barrel. On March 6, it hit a 14-year high of $140.