No Respite In Petrol, Diesel Prices Despite Crude Oil Market Crash. Here's What You Should Know

Oil and marketing companies are not passing the benefit of low oil prices to the retailers because they are forced to cut on refining capacity and deal with inventory losses due to falling demand amid nationwide lockdown

PIC/PTI

New Delhi, May 4: Even as the US crude oil futures crashed last month plunging below $0 mark in a historic fall and international benchmark Brent touching a multi-year low of $26 a barrel, must have raised hope for domestic price cut of petrol and diesel. However, several states in India have increased the prices of both these fuels amid the Covid-19 lockdown which has derailed the global economy. Here is why the historic fall in international crude prices didn’t bring any relief to customers. What happened in the global oil market? In India, prices of fuel are dictated by Brent, which has declined around 60 per cent since the start of 2020, whereas diesel price has dropped by 10 per cent and petrol prices dipped 8.5 per cent from the highs on January 11, according to Livemint. Brent crude oil prices were still trading higher in comparison to WTI oil prices when the prices moved into the negative territory. What are the problems of oil marketing companies (OMCs)? There has been no relief in petrol and diesel prices in line with the fall in brent prices because a huge component of domestic charges including taxes and duties. Apart from this, the nationwide lockdown has put the government under pressure which is trying to attract more taxes from fuel to balance the losses accrued from lower tax receipts. In respect to that, the government has raised excise duty on petrol and diesel by Rs 3 per litre and expected to raise it further. Besides, road cess was also increased by Rs 1 per litre, each on petrol and diesel to Rs 10. Moreover, OMCs are going through a difficult phase because the demand has plunged due to nationwide lockdown which has halted business activities leaving a hole in their pocket along with existing inventories. In order to make up for those losses, the OMCs are not passing the benefit of low oil prices to the retailers. According to the estimated by the International Energy Agency, India's annual fuel consumption will decline 5.6 per cent in 2020 compared with growth of 2.4 per cent forecast in its March report. It estimates India's petrol demand will decline by 9 per cent, while diesel will witness a drop of 6.1 percent. The price of diesel and petrol has gone up Rs 7.10 a litre and Rs1.67 per litre, respectively, in Delhi on Tuesday after the state government raised value added tax (VAT) on the two auto fuels.