Why are fuel prices at pumps not going down?

.

For the first time since early February, international crude benchmark Brent went below $90 a barrel last week. This level was last seen prior to Russia’s invasion of Ukraine. The recent decline came amid expectations of weaker global demand and US dollar strength.

.

Indian refiners have also been securing discounted supplies from Russia as sanctions prompted many oil importers to stop trade with Moscow.

.

Russia rose to become India’s second biggest supplier of oil. India too became Russia’s second major oil buyer after China, although India’s monthly oil imports from Russia have been declining after hitting a record in June.

.

Only in August did Saudi Arabia overtake Russia by a thin margin to once again become the second-biggest oil supplier to India, after a three-month gap.

.

Between April to August, Russian oil accounted for about 16% of India’s overall imports, compared with just a 0.5% share a year ago.

.

Yet, Indian refiners are not passing on the cost savings derived from purchasing discounted Russian crude oil to the end-users of diesel and petrol.

.

Petrol currently costs Rs 96.72 a litre and diesel Rs 89.62 in the national capital.

.

If one excludes the impact of excise duty cuts in May, prices of petrol and diesel have been unchanged at fuel station since April 6, for a record 166 days.

.

Early this month, Minister for Petroleum and Natural Gas Hardeep Singh Puri had linked no revision of fuel prices to the losses that state-owned fuel retailers incurred in keeping the fuel prices unchanged when international oil prices surged to multi-year highs. “Have we recouped all our losses?” Puri went on to ask.

.

The three retailers posted a combined net loss of Rs 18,480 crore in June quarter.

At one point, oil marketing companies were losing Rs 20-25 per litre on diesel and Rs 14-18 a litre on petrol as international oil prices soared. These losses have been trimmed with the fall in oil prices.

.

Sumit Pokharna, Research Analyst (IT and Oil & Gas) – Vice-President, Kotak Securities says, govt kept prices low to tame inflation when crude was high. Despite high gross refining margin, OMCs incurred losses. Benefit of falling crude offset by negative refining margin

.

After Monday’s fall in crude oil prices, Pokharna says, OMCs are still incurring a loss of Rs 8 per litre on diesel though this is down from Rs 15 in Q1 and Rs 13 in the ongoing Q2 up until last week.

.

For petrol, the marketing margin turned positive yesterday to Rs 6.5 per litre. This compares to a negative Rs 11 in Q1 and a negative Rs 3 per litre until last week.

Oil Minister Puri had indicated international oil prices need to stay at $88 per barrel or below to bring some relief.

.

Although there is no under-recovery on petrol now, for diesel it may take longer. As a prudent measure, OMCs will be allowed to recover the past losses before the benefit of any further fall in crude price can be passed on to the consumers.

.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor