Indian consumers haven’t fully benefitted from sharp decline
NEW DELHI: The full benefit of a sharp fall in international oil prices has eluded the Indian consumer in the current financial year. While crude oil prices for Indian refiners fell 36% from a peak of $75.49 per barrel on April 25, 2019 to the year’s low at $47.92 per barrel on March 6, 2020, pump prices of petrol and diesel fell by a mere 3% and 4%, respectively.
Even after factoring in the rupee-dollar exchange rates, there was a sharp gap between fall in crude oil price of the Indian basket and the consumer price of petrol and diesel. While crude oil price of the Indian basket in the rupee terms fell by 24% from the April 2019 peak to its lowest level in the current financial year on March 6, prices of petrol and diesel saw mere 2.57% and 4% decline, respectively. India imports at least 80% of crude oil it processes and pays in dollar. The price of Indian basket of crude, the actual value of purchase by domestic refiners, factors in the rupee-dollar exchange rates.
A government official aware of the development said retail prices often change with a lag.
“In cases of sudden fall in oil prices, refiners incur significant inventory losses. Possibly, they would further reduce prices after factoring in inventory losses,” the official said on condition of anonymity.
Both private and state-run fuel retailers enjoy freedom to align consumer prices of petrol and diesel at par with international markets. The three state-run oil marketing companies—Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—control about 90% of the market. Their pump rates for petrol and diesel are almost the same, with a small variation of about 4-5 paise per litre.
Even as the international oil prices plunged by about 30% on Monday, pump prices of petrol remained above ₹70 per litre in the country. On Monday petrol was sold at ₹70.59 per litre in Delhi and diesel at ₹63.26 a litre.
The petroleum ministry, IOC, BPCL and HPCL did not respond to HT’s queries.
On Monday, benchmark Brent crude was trading at $35.46 per barrel at 6pm, down by 21.7% from the Friday close ($45.27/barrel) because of Russia’s refusal to join the other members of the oil cartel, the Organization of the Petroleum Exporting Countries (Opec), in cutting output by 1.5 million barrels per day to counter slump because of the Coronavirus outbreak. In retaliation Saudi Arabia offered to cut its official selling prices by $6-8 per barrel from April, triggering a price war among producers for the marketshare.
Experts said that the full impact of global oil price slump on India is some time away. Rajnish Gupta, associate partner, EY India said, “If crude prices stay at current levels for a period of time, we should see the price of diesel and petrol come down. Transmission will be impacted on how contracts are structured and what percentage of supply would be on spot and what on forward/future prices.”
According to Deepto Roy, partner, Shardul Amarchand Mangaldas & Co. the immediate reason for the global oil price crash has been Russia’s declaration that it will no longer comply with the price and quantity controls over global crude. “Russia believes that continued control on supply is handling over a faltering global economy to the US shale oil manufacturers. Russia’s actions mean that Middle Eastern and US manufacturers will be forced to compete and global supply will increase,” he said. “Analysts believe that the competition will result in suppressed prices in a global economy already faltering from the Coronavirus crisis and unprecedented low prices cannot be ruled out,” he added.