Retail diesel price closing up with bulk rate

Iraq crisis has proved to be a dampener with Brent crude climbing to a nine-month high at $115 a barrel today

If not for dealer commission, oil marketing companies were expecting the differential between the price of bulk diesel and retail diesel to come down and with another few hikes in the coming months, the prices of consumer and retail diesel could equalise.

But the Iraq crisis has proved to be a dampener with Brent crude climbing to a nine-month high at $115 a barrel on Friday, its highest since September 2013. Brent is on it way to gain more than five per cent this week, its biggest weekly rise since July 2013. US crude, on the other hand, is also witnessing a similar gain — its biggest since December 2013.

“If you deduct the dealer commission, the effective price differential between bulk diesel and retail has narrowed to down to 0.70 paise. Another month’s price hike of 0.50 paise and both bulk and retail prices could be at a par," the official added.

In Delhi, retail selling price of diesel is Rs 57.28 per litre and bulk consumer price is Rs 59.17 per litre. In Mumbai, the retail selling price of diesel is Rs 65.84 per litre and bulk price is Rs 68.20 per litre. The differential stands at Rs 1.89 per litre in Delhi and Rs 2.36 per litre in Mumbai. The dealer commission is Rs 1.19 per litre. The under-recovery on diesel stands at Rs 1.65 per litre.

“There is not much of a difference between bulk diesel rates and retail rates now. Thus, it could have made a valid case for doing away with dual pricing of diesel and deregulating diesel," said a senior official from an oil marketing company.

He added that the dual pricing of diesel, brought in as a reform measure to contain the fiscal deficit and reduce subsidy on diesel, has not being achieved as bulk diesel users frequent retail outlets to draw diesel. “Also, it is a waste of fuel to drive down to a consumer outlet when you have a retail outlet nearby," the official added.

In 2013-14, with an increase of 50 paise every month, retail diesel prices have risen by Rs 6.90 per litre. “Due to these measures, in spite of high crude oil prices ($108 per barrel) and a sharp 11 per cent depreciation of the rupee against the dollar, under-recoveries in 2013-14 have declined by 13 per cent y-o-y."

“Under-recovery on diesel, which accounted for about 45 per cent of the total burden in 2013-14, is likely to be eliminated by the end of 2014-15. This is due to the government’s decision to increase diesel prices by 50 paise every month till domestic prices get aligned to international prices," said Crisil Research, in a report released this week.

While the 50 paise price hike did not take place in April 2014 due to ongoing general elections, diesel prices were increased by Rs 1.09 per litre on May 13 this year, after the polls ended. Further, after the formation of the new government, diesel prices have been increased by 50 paise already.

“The increase in retail diesel prices narrowed the gap between diesel and petrol prices and reversed the shift that was being seen towards diesel cars. The price hike along with slowdown in transportation segment due to economic slowdown has helped rationalise diesel demand, which was growing at seven-eight per cent till 2012-13. Post price increases, diesel demand is estimated to decline marginally by one per cent in 2013-14 and grow at a relatively slower pace of two-three per cent over the next two years," added Crisil Research.