RETAIL OIL PRICES COULD BE DOWN BY ₹5-8 AFTER CRUDE SLIDE: DATA

Cost of India’s crude oil purchase price on March 10 was ~2,552 a barrel, a level close to what it was on Dec 16, 2015

NEW DELHI: The fall in crude oil prices — by 48% since April 1, 2019, and by 31% on Monday alone — have once again highlighted the opacity of retail fuel prices in India. According to HT’s analysis, retail prices of petrol and diesel should be ideally cheaper by ₹5 per litre and ₹8 per litre respectively, after factoring in the rupee-dollar exchange rate, central and state levies, and dealer margins.

AN ANALYSIS OF OFFICIAL DATA ESTIMATES THAT PETROL SHOULD HAVE BEEN SOLD AT ~65.3 PER LITRE AND DIESEL AT ~55.01 IN DELHI

NEWDELHI: The fall in crude oil prices — by 48% since April 1, 2019, and by 31% on Monday alone — have once again highlighted the opacity of retail fuel prices in India.

According to HT’s analysis, retail prices of petrol and diesel should be ideally cheaper by ₹5 per litre and ₹8 per litre respectively, after factoring in the rupee-dollar exchange rate, central and state levies, and dealer margins. The cost of India’s crude oil purchase price [Indian basket] on March 10 slumped to ~2,552.56 a barrel, a level close to what it was on December 16, 2015, when petrol was being sold at ~59.98 a litre and diesel at ~46.09 a litre, according to the oil ministry’s data-keeper Petroleum Planning and Analysis Cell (PPAC). The cost of Indian basket crude was ~2,603.80 per barrel on December 16 about four years ago.

A detailed analysis of the official data that factors in prevailing exchange rates, dealer commissions and taxes (central excise and value added tax), conservatively estimates that petrol should have been ideally sold at ~65.3 per litre in Delhi and that the pump price of diesel should have been ~55.01 per litre.

Despite global crude oil prices having crashed since Monday, domestic prices have remained firm. To be sure, local prices are also a function of the nature of the contracts Indian refiners have with their oil suppliers and also the lead period and inventory they work with.

According to the state-run Indian Oil Corporation (IOC), petrol in Delhi was priced at ~70.29 a litre on Wednesday and diesel at ~63.01 a litre, reflecting a meagre downward revision of 30 paise and 25 paise a litre, respectively.

The exchange rate on March 10 was ~73.95 per dollar, and the dealer margin on petrol was ~3.55 per litre and on diesel, ~2.49 a litre. Besides, petrol attracted ~19.98 a litre excise duty and ~15.25 a litre VAT in Delhi. Levies on diesel were ~15.83 per litre (excise duty) and ~9.48 a litre VAT.

The petroleum ministry, IOC, Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) did not respond to queries from HT.

On Monday, benchmark Brent crude price fell to $35.33 per barrel from the Friday close of $45.27/barrel because of Russia’s refusal to join the other members of the oil cartel, the Organisation of the Petroleum Exporting Countries (OPEC), in cutting output by 1.5 million barrels per day to counter a slump because of the Coronavirus outbreak.

Benchmark crude prices hovered around $35.8 a barrel on Wednesday due to weak global sentiment and a potential price war. The OPEC-plus Russia grouping held a meeting in Vienna on Friday. After Russia refused to agree to the supply-cut, Saudi Arabia, one of the world’s largest oil producers, offered to cut its official selling prices by $6-8 per barrel from April, triggering a price war among producers for the market-share.

On Wednesday, Saudi Arabia decided to further increase production, as did the UAE. Several petrol pump dealers said on condition of anonymity that the three state-run oil marketing companies (OMCs), IOC, BPCL and HPCL, do not have a transparent pricing mechanism and formed a kind of cartel on pricing matters. Since levies on fuel haven’t been increased, the increased margin (because of lower prices) must be flowing straight to the bottom line of these companies, analysts pointed out.

“OMCs are misusing pricing freedom. Retail prices of all the three companies are almost same, with less than five paisa difference,” a Delhi-based dealer said requesting anonymity. The three state-run fuel retailers control about 90% of the domestic fuel retail market. The United Progressive Alliance (UPA) government in 2010 allowed them to fix retail prices of petrol. The NDA government freed diesel from price control in 2014. Before free-pricing was allowed, fuel retailers faced the brunt of high crude prices resulting in so-called under-recoveries when they had to sell fuel at prices below their cost of production.

A Meerut-based dealer and member of the Empowering Petroleum Dealers Foundation (EPDF), Hemant Sirohi said, “It is quite surprising that refining margins of private refiners often go as high as $8 per barrel compared to about $4 barrel margin for the public sector oil marketers, but all companies sell petrol and diesel at the same rate.”