Oil price crash: Domestic petrol, diesel prices may fall in the near future

Auto fuel prices may see a cut of another Rs 9-13 per litre over a fortnight if crude oil remains at same level

With international crude prices seeing one of the biggest single-day fall since the Gulf War in 1991 on Monday, domestic petrol and diesel prices are likely to decline in the near future. 

Based on the industry estimates, auto fuel prices may see a cut of another Rs 9-13 per litre over a fortnight if the global prices remain at the same level.

This is so because petrol and diesel prices are aligned to 15-day average of crude oil prices. For a $1 decline in a barrel of crude oil, prices of petrol and diesel, too, will see a drop of 50-55 paise per litre. 

Though product prices do not change in proportion to crude oil, a Mumbai-based analyst said $30 per barrel decline in crude price over the last 45 days should result in a cut of Rs 15-17 per litre in auto-fuel prices. 

“Already, oil marketing companies (OMCs) have gone for a cut of Rs 4-5 a litre and an additional Rs 9-13 following the current decline,” he said.

Brent crude prices crashed by 21.52 per cent at one point on Monday to $35.53 per barrel, while West Texas Intermediate (WTI) crude was also seen down by 22.65 per cent to $31.93 per barrel. 

On the other hand, the Indian crude oil basket was at $47.92 per barrel on Monday, and is expected to go down further on Tuesday.

“Prices of petrol and diesel will depend on the product pricing, not the crude pricing directly. However, it may ultimately follow the crude trend, maybe with a time lag,” said M K Surana, chairman of Hindustan Petroleum Corporation (HPCL).

The decline will also be advantageous for India as its import bill may also come down.  According to the Petroleum Planning and Analysis Cell (PPAC), if crude oil prices change by $1 a barrel, it will have an impact on India’s import bill by Rs 2,936 crore. 

On the other hand, if exchange rate of rupee versus dollar changes by Rs 1 per dollar, import bill will change by Rs 2,729 crore.

R Ramachandran, director (refineries), Bharat Petroleum Corporation (BPCL), said: “The West Asian crude is our stable crude, so prices coming down is a good thing. It is an opportunity for us to look at choices. 
 

We already have term contracts. Processing more of these crudes, if they are competing with other crudes is an option for us to look at.”

He said: “Overall, if the crude prices come down, our working capital also comes down. In the long run, it may have an impact on product prices too. So, it is a good thing for us.”

Though, product prices are likely to come down, it may not be advantageous for consumers, if the central and state governments decide to increase excise duty and value added tax (VAT) to raise its revenues. 

The analyst indicated that in a similar situation in 2016, the Union government had increased excise duty on diesel by Rs 13.8 per litre (from Rs 3.5 a litre in February 2014 to Rs 17.33 per litre in April 2016) and on petrol by Rs 12.4 per litre (from Rs 9.05 per litre in February 2014 to Rs 21.48 per litre in April 2016). 

In addition, state governments, too, had increased VAT on petrol and diesel, but later some states reduced it.