Petrol – Diesel Prices: As Diwali approaches, fuel consumers might have reason to celebrate. Rumors are circulating about a possible reduction in petrol and diesel prices, potentially ranging from ₹2 to ₹3 per litre. This potential price cut stems from recent changes in the global oil market and could have significant implications for both consumers and the government.
Global Oil Prices and Indian OMCs
The foundation for this potential price reduction lies in the recent dip in global crude oil prices. According to ICRA, a leading rating agency, the crude basket averaged $74 per barrel in September, down from $83-84 per barrel in March. This decrease has boosted the profit margins of Indian Oil Marketing Companies (OMCs), creating room for price cuts.
Potential Price Cut Details
Girishkumar Kadam, Senior Vice President at ICRA, notes that OMCs’ net realization for petrol was ₹15 per litre higher than international prices in September, with diesel at ₹12 higher. If crude prices remain stable, this could translate to a ₹2-3 per litre reduction in retail fuel prices.
Timing and Political Implications
CLSA, a global investment firm, suggests that the price cut could be announced after October 5. This timing aligns with earlier comments from Oil Secretary Pankaj Jain. Interestingly, the potential price reduction coincides with the upcoming Maharashtra state elections in November. This timing has led to speculation that the price cut could be a strategic move by the BJP-led alliance to appeal to voters.
Government’s Potential Response
While consumers might benefit from lower fuel prices, the government may have its own strategy. CLSA anticipates that any price cuts could be offset by an increase in excise duty on petrol and diesel. Currently, excise duties stand at ₹19.8 per litre for petrol and ₹15.8 per litre for diesel, which is 40-50% lower than their 2021 peak levels.
Financial Implications
A ₹1 increase in excise duty could generate significant additional revenue for the government – approximately ₹16,500 crore annually from diesel and ₹5,600 crore from petrol. This potential windfall could help bolster government coffers as it seeks to increase revenue.
Impact on Oil Marketing Companies
For OMCs like Indian Oil, Bharat Petroleum, and Hindustan Petroleum, the situation is complex. While lower crude prices have improved their margins, a combination of retail price cuts and increased excise duties could squeeze these margins, especially if crude prices rise above $80-85 per barrel.
As Diwali approaches, the possibility of lower fuel prices offers a glimmer of hope for consumers. However, this potential relief at the pump may be tempered by government actions to increase revenue through higher excise duties. The coming weeks will reveal whether this early Diwali gift materializes and how it will impact various stakeholders in the Indian fuel market.
