Petrol, diesel prices may soften by month-end as Brent stabilises

But prices may remain uncomfortably high for most consumers

Petrol and diesel prices are expected to soften from their record highs towards the end of July, but they will remain out of the comfort zone for most consumers. This is because Brent crude oil prices are stabilising around $75 a barrel, down from highs of $77 a barrel earlier this month.

The retail selling price of petroleum products in India is linked to global product markers. They, therefore, do not exactly reflect crude oil markers, though the trajectory products and crude oil follow is largely the same. 

Brent, the most popular marker for crude oil, traded at around $74 a barrel on Monday. The Indian basket of crude oil, the price at which Indian refineries buy it, stood at $73.99 a barrel. In comparison, the average price of the Indian basket in June stood at $71.63 a barrel.

The upward movement of crude oil resulted in a corresponding inc­rease in price of petroleum products such as petrol, diesel, and Liquefied Petroleum Gas (LPG or cooking gas) that are being sold at record high rates in the country.

However, the upward trajectory seems to have been arrested with the fears of rising Covid-19 cases. 

Another factor dragging prices is the inability of the Organisation of the Petroleum Exporting Countries and its allies to reach an agreement on production limits. Since traders are anticipating more supplies, prices have moved downwards again.

In India, petrol and diesel are benchmarked to international commodities of a similar grade. 

Indian oil companies tend to price petrol and diesel based on the average price of the benchmarked commodities with a lag of 15 days. 

So, if international prices fall today, the domestic petrol and diesel prices would follow suit around a fortnight later. The same happens when prices rise, unless the Centre issues an unwritten diktat to hold price movement.

The price of petrol in Delhi stood at Rs 101.19 a litre, while that of diesel was Rs 89.72 a litre on Monday. In the national capital, the movement in diesel prices has remained muted in July, hovering at Rs 89 a litre. But petrol prices have continued to rise. Petrol sold at Rs 99.16 a litre in the beginning of July.

According to Prashant Vasisht, vice-president and co-head, corporate ratings at ICRA, “Impact of $1 a barrel in crude price is about 60 paisa on petrol price and 55 paisa on diesel price, considering the taxes in Delhi.”

“The impact of a Rs 1 depreciation in exchange rate is about 65 paisa on petrol and 60 paisa on diesel in Delhi,” he told Business Standard.

The Indian rupee has been largely stable and stood at 74.55 against the US dollar on July 1. It fell to 74.82 against the dollar on July 7 but firmed up to 74.60 on Monday.