Prices for petrol and diesel are expected to rise this week as oil companies prepare to cut losses after keeping them stable for more than four months.
Despite international oil prices jumping to a 13-year high of $140 per barrel, petrol and diesel prices are likely to be raised this week as oil companies prepare to recoup losses from holding rates steady for over four months in the run-up to assembly elections in five states, including Uttar Pradesh.
Fuel prices need to be raised by $15 per litre for retailers to break even, according to industry insiders.
The US oil benchmark, West Texas Intermediate crude futures, climbed to $130.50 a barrel on Sunday evening, the most since July 2008, before falling. Brent crude, the worldwide benchmark, touched a high of $139.13 overnight, its highest since July 2008.
To make matters worse, the rupee hit a new low of 77.01 per dollar on Monday.
India buys nearly 85% of its oil from other countries, making it one of the most vulnerable countries in Asia to rising oil costs.
Oil prices, which have already risen by more than 60% this year, and a falling rupee may harm the country’s finances, upend a fledgling economic recovery, and stoke inflation.
Fuel prices have been modified daily since 2017 in accordance with the benchmark worldwide rate for the previous 15 days. However, rates have been frozen since November 4, 2021.
According to data from the energy ministry’s Petroleum Planning and Analysis Cell (PPAC), the basket of crude oil that India imports increased beyond $111 per barrel on March 1.
This contrasts to an average price of $81.5 per barrel for the Indian basket of crude oil when the prices of gasoline and diesel were frozen four months ago.
“With the final round of polling wrapping up on Monday, it’s now believed that the government would enable state-owned fuel merchants to resume daily price revisions,” an industry source said.
Since Russia sent troops to the Ukraine border last month, international oil prices have been on the rise. They increased when Moscow invaded the Eastern European country, fearing that the crisis in Ukraine or punitive western sanctions might impede Russia’s oil and gas supply.
While western sanctions have kept energy commerce out so far, the fear of a full ban on Russian oil and goods has pushed world oil prices upward.
In a report, rating agency ICRA predicted that if crude oil prices average $130 per barrel, India’s current account deficit will widen to 3.2 percent of GDP in 2022-23, crossing the 3% threshold for the first time in a decade.
“Until the dispute settles, we expect the dollar-rupee cross rate to trade in a band of 76.0-79.0 per dollar,” it stated.
For every $10 increase in the average price of the Indian crude basket, the current account deficit (CAD) is anticipated to worsen by $14-15 billion (0.4 percent of GDP).
Russia produces a third of Europe’s natural gas and around ten percent of the world’s oil. Approximately a third of Russian gas supplies to Europe pass through Ukraine via pipelines.
While supplies appear to be of little concern to India at the time, it is the costs that are causing anxiety.
In Delhi, a litre of petrol costs 95.41 rupees, while a litre of diesel costs 86.67 rupees. This pricing includes the excise tax decrease and the Delhi government’s reduction in the VAT rate.
Prior to these tax cuts, the price of gasoline had reached an all-time high of 110.04 per litre, while diesel was priced at 98.42.
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