Crude oil prices drop by 21% since March, but fuel costs continue to sting

Hopes for a drop in petrol and diesel prices have grown amid a steady fall in global crude oil rates. Petroleum Secretary Pankaj Jain hinted that international market trends might result in lower fuel prices, making it the government’s first statement on the matter in six months.

Although crude oil prices have dropped by 21 per cent over the past six months, domestic petrol and diesel prices remain unchanged. With inflation easing and elections around the corner, speculation is growing that petrol could become cheaper by Rs 10 per litre and diesel by Rs 6-8 per litre, according to a report by vernacular daily Dainik Bhaskar.

Global oil price drop and impact on India

Crude oil prices have hit their lowest point in nearly three years, improving the profitability of fuel marketing companies and potentially setting the stage for reduced fuel prices at the pump. 

On Tuesday, Brent crude dipped below $70 per barrel for the first time since December 2021, driven by concerns over slowing global economic growth. The price drop has benefitted fuel retailers, especially state-owned companies that control 90 per cent of the market.

Market trends and crude oil futures

In recent futures trading, crude oil prices saw a slight rise, reaching $69.42 per barrel on the Multi Commodity Exchange, with traders widening their positions due to strong demand in the spot market. Despite these fluctuations, the long-term trend has been a decrease in crude oil prices, leading to a substantial rise in profit margins for oil refining companies.

India’s request to Opec+ for increased output

India has called on Opec+ (the Organization of the Petroleum Exporting Countries and its allies, led by Russia) to boost oil production, particularly as demand in countries like India continues to grow. India, the world's third-largest importer and consumer of oil, relies on foreign sources for over 87 per cent of its supply. Indian oil companies have also been directed to increase purchases from the most affordable suppliers, including Russia, to secure cost-effective crude.

Crude oil prices down, fuel prices static

According to the Petroleum Planning & Analysis Cell (PPAC) under the Petroleum Ministry, the price of the Indian basket of crude oil fell from $89.44 per barrel in March, to $71 per barrel on September 8, a decline of over 20 per cent. Despite this, domestic petrol and diesel prices have remained unchanged since March. In Delhi, petrol continues to be priced at Rs 96.72 per litre, while diesel costs Rs 89.62.

Over the past six months, Indian crude oil prices have fluctuated significantly. In April, the price stood at $89 per barrel, falling to $83.62 in May. June saw a slight uptick to $84.15, followed by stability in July, at $84.15. Then the downward trend began in August, with prices hitting $78.27, before experiencing a significant dip in September to $71 per barrel.

The reduction in crude oil prices has resulted in an estimated benefit of Rs 33.58 crore for oil companies. However, this windfall has not been passed on to consumers in the form of lower fuel prices, leading to public frustration as oil companies continue to enjoy healthy profit margins. The prices of petrol, diesel have been reduced only twice in the past 30 months.

Rising margins, stubborn fuel prices

One of the reasons for the lack of price reductions is the increased profitability of oil refining companies. In the first quarter of FY24, refining companies recorded profits of Rs 9.57 per litre, a significant jump from Rs 3.07 per litre in the same period of FY23. Despite these higher margins, consumers have yet to see any relief at the pumps.

Despite the steady decline in crude oil prices over the past six months, retail prices of petrol and diesel have remained high. In major cities, petrol continues to cost over Rs 95 per litre, with prices exceeding Rs 100 per litre in Mumbai, Kolkata, and Chennai.

Festivals and elections could influence fuel price cuts

With Diwali and elections on the horizon, there is speculation that the government may lower petrol and diesel prices to offer relief to the public amidst easing inflation. Experts believe that the timing of any price cuts would likely align with the festive season and election campaigns, allowing the government to address consumer concerns.