Explained: Why petrol and diesel prices rose after a 137-day freeze

Gasoline and diesel prices were raised on Tuesday for the first time in more than four months as oil marketing companies (WTO) increase in the prices of the two fuels of about Rs 0.8 per litre. The price of petrol in the nation’s capital is now Rs 96.21 per liter while diesel is selling at Rs 87.47 per litre. Gasoline and diesel prices are expected to rise further as OMCs increased the price of bulk diesel of Rs 25 per liter on Sunday, pushing wholesale prices well above retail pump prices.

Why have oil marketing companies raised fuel prices?

Oil marketing companies raised gasoline and diesel prices after a gap of more than four months, as there was a sharp rise in the price of crude oil. The price of Brent crude rose 45% to $118.5 a barrel from $81.6 a barrel in the last WTO fuel price review. India imports about 85% of its crude oil needs.

Typically, gasoline and diesel prices are revised daily based on a 15-day moving average of benchmark petroleum product prices. However, the oil marketing companies kept the prices of the two fuels constant from 4 November, when the Center announced a cut of Rs 5 per liter of excise duty on petrol and a cut of Rs 10 per liter of excise duty on diesel. The price review freeze continued until the end of elections in Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur earlier this month.

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How much are fuel prices expected to increase?

Experts note that gasoline and diesel prices need to be increased by around Rs.0.52 for every $1 per barrel increase in crude oil price to allow CMOs to maintain their marketing margins. Given that the price of crude has increased by nearly $37 per barrel since the previous price review, the OMC may need to raise prices by Rs 19 per liter for gasoline and diesel to restore marketing margins.

However, an increase in refining margins – the difference between the price of crude oil and the value of petroleum products made from crude oil at a refinery – may allow refiners to continue to absorb some of the impact of the rise. crude oil prices. Analysts noted that the Center could also reduce excise duties on gasoline and diesel, which are still above pre-pandemic levels, to reduce the impact of high crude oil prices on consumers. .

The central excise duty on petrol is still Rs.8 higher than pre-pandemic levels, while the excise duty on diesel is still Rs.6 higher than pre-pandemic levels.

What is the difference between diesel prices for wholesale and retail diesel buyers?

Despite the rise in retail, the price of bulk diesel is now about Rs 25 per liter higher than diesel at retail outlets of petroleum marketing companies across the country. In Mumbai, the wholesale price of diesel has been raised to Rs 122 per liter from Rs 94.14 per liter at retail outlets in the city, according to sources from petroleum marketing companies.

Major wholesale buyers of diesel, including Indian Railways, factories, malls, transport companies, will face significantly higher prices than retail consumers. Diesel is mainly used by industry to power emergency generators and also for the operation of mobile towers. Backup power will also become more expensive for housing companies that use diesel generators as backup power.

An expert who did not wish to be quoted said higher prices for wholesale buyers could disproportionately affect generator users in Tier 2 and Tier 3 cities, as power supply is more reliable in Tier 1 cities such as Delhi and Mumbai.

The industry noted that the decision to increase bulk diesel prices will encourage bulk consumers to stock up on fuel at retail outlets.

A spokesperson for Reliance BP Mobility Ltd (RBML) said there was a massive increase in demand at petrol stations due to the Rs 25 per liter price difference between retail diesel and diesel industrial. This leads to significant diversion of bulk direct customers to retail outlets. The spokesperson also pointed to surging purchases by regular and business customers who are buying ahead in anticipation of higher prices. RBML operates more than 1,380 retail fuel outlets across the country.

RBML sources confirmed that it had reduced the supply of petrol and diesel at outlets as it faced losses on sales of both products. When the price of crude oil reached record highs in 2008, Reliance was forced to shut down its retail fuel business because it was unable to match the subsidized prices offered by OMC-owned OMCs. State.

Union Petroleum and Natural Gas Minister Hardeep Singh Puri confirmed last week that the consumption of petroleum products has risen sharply in anticipation of rising fuel prices.

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