Diesel set to turn cheaper as crude oil prices dip

The government may soon reduce diesel prices by ` 1.50 to ` 2 a litre, the first cut since January 2009.

Sources in the government said a decision on this would be taken after Prime Minister Narendra Modi returns from the US.

The oil ministry said in an official statement on Wednesday said state-owned oil companies were making a profit of ` 1.90 a litre on diesel sales.

“The oil ministry does not have a clear mandate to reduce rates after the January 2013 decision of the Cabinet to raise prices by 40-50 paisa a litre every month,” a ministry official explained.

The monthly hikes were put in place in order to bring the diesel price on par with global prices, as a precursor to its deregulation. The price of the Indian basket of crude oil is below $95 a barrel, which has wiped out losses to fuel retailing companies on account of sale of diesel.

September was the first month that passed without a diesel price hike. In August, petrol price was cut by ` 1.82, and diesel hiked by 50 paise. The government had on Tuesday cut the retail price of petrol by 65 paise per litre.

“The over-recovery on high speed diesel applicable for the first fortnight of October effective 01.10.2014 is now ` 1.90 per litre,” the statement said. “The over-recovery was ` 0.35 per litre during the second fortnight of September 2014.”

With state elections looming in Jammu and Kashmir, Maharashtra, Bihar and Jharkhand, the government does not want to risk being seen as seeking to gain political mileage out of the situation.

Sale of cooking fuel (PDS kerosene and domestic LPG) is still generating under-recoveries to the tune of ` 31.22 per litre of kerosene and ` 404.64 per LPG cylinder, the release added.