Crude Hits $110 A Barrel; Petrol, Diesel Prices May Go Up By Rs 9 From Next Week

The crude oil basket that India buys rose above $102 per barrel on March 1, the highest since August 2014

Domestic fuel prices, which are directly linked to global oil prices as India imports 85 per cent of its oil needs, have not been revised for a record 118 days in a row. Image: Getty

New Delhi: To bridge the gap created because of soaring crude prices globally, the rates of petrol and diesel in India may go up at least by Rs 9 after the ongoing Assembly elections. 

Already crude oil rates soared to seven-year high on Wednesday because of disruptions in supply and apprehensions mounting after strict sanctions were imposed on Russian banks amid the intensifying Ukraine conflict.

According to Reuters report, Brent crude futures gained $5.30 (5 per cent) to $110.23 a barrel 9:59 am, a level last seen in July 2014. US West Texas Intermediate (WTI) crude futures were up $5.02 (4.8 per cent) to $108.41, after earlier hitting the highest since September 2013.

In a report by the PTI, the crude oil basket that India buys rose above $102 per barrel on March 1, the highest since August 2014, according to information from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry.

This compares to an average of $81.5 per barrel price of the Indian basket of crude oil at the time of freezing of petrol and diesel prices in early November last year.

JP Morgan in its report said, “With state elections getting over next week, we expect daily fuel price hikes to restart across both gasoline and diesel.” The seventh and final phase of polling in Uttar Pradesh is on February 7 and the counting of votes slated for March 10.

State-owned refiners Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) are making a loss of Rs 5.7 a litre on petrol and diesel. This is without taking into account their normal margin of Rs 2.5 per litre.

The brokerage said for oil marketing companies to revert to normalised marketing margins, retail prices need to increase by Rs 9 a litre or 10 per cent.

“We expect a combination of small excise duty cuts (Rs 1-3 per litre) and retail price hikes (Rs 5-8 a litre) to reflect the pass-through of $100 per barrel oil,” it said.

Russia makes up for a third of Europe’s natural gas and about 10 per cent of global oil production. About a third of Russian gas supplies to Europe usually travel through pipelines crossing Ukraine.

But for India, Russian supplies account for a very small percentage. While India imported 43,400 barrels per day of oil from Russia in 2021 (about 1 per cent of overall its imports), coal imports from Russia at 1.8 million tonnes in 2021 made up for 1.3 per cent of all coal imports. India also buys 2.5 million tonnes of LNG a year from Gazprom of Russia.

While supplies at the moment seem to be of little worry for India, it is the rates that are a cause of concern.

Domestic fuel prices, which are directly linked to global oil prices as India imports 85 per cent of its oil needs, have not been revised for a record 118 days in a row.

In Delhi, petrol costs Rs 95.41 a litre and diesel is priced at Rs 86.67. This rate is after accounting for the excise duty cut and a reduction in the VAT by the state governments.

Before these tax reductions, petrol price had touched an all-time high of Rs 110.04 a litre and diesel came for Rs 98.42. These rates corresponded to Brent soaring to a peak of $86.40 per barrel on October 26, 2021. Brent was $82.74 on November 5, 2021, before it started to fall and touched $68.87 a barrel in December.

Though JP Morgan sees oil coming down to $86 a barrel by the October-December quarter, it can hit $150 if Russian Energy exports comes to a complete halt.