Udayavni Special

Why petrol and diesel prices in India keep on rising?


Team Udayavani, Jul 7, 2020, 2:59 PM IST

Since June 7, fuel prices went up for a consecutive 22 days. In Delhi, the rise in the petrol price was hiked by Rs. 9.12 per litre between June 7 and June 26 while diesel is at its speed with a hike of Rs. 11.01 per litre

The fuel prices are now at a four-and-a-half month high in India even as crude oil rates have slumped below the $40 a barrel mark.

Why are the fuel prices rising

Well, first thing Crude oil isn’t the end product. It is  an intermediary that requires additional refining. One needs to pump crude through a processing facility

Also, the price of the end product can vary depending on the complexity involved in processing crude into its desirable constituents.  Diesel is heavier, less volatile, and easier to refine compared to petrol and that is why diesel tends to be slightly cheaper than petrol

Also, government doesn’t take much tax on it because of its high usages by trucks, industries, farmlands, generators etc, even personal vehicle.But, On June 24th , diesel was sold at a higher price than petrol.

Due to lockdown, there was a dive in 60% in petrol consumption and 55% in Diesel usage. But businesses cannot be stopped suddenly, the companies still have to ship the oil, continue with the refining process, pay salaries to the employees even though there aren’t enough consumers buying fuel.

As there was less consumption of crude oil during the lockdown, government increased excise on fuel and diesel. Excise is paid by the producers and sellers and when the government increases the excise, the companies pass on to the consumer.

Also, Oil Marketing Companies saw this coming and stopped revising prices after March 16th. As they could see that crude oil prices were trending downwards they wanted to keep their margins intact. OMC’s started revising prices again on June 6.

On the other hand, state governments also have chosen to increase taxes on petrol and diesel in order to increase revenue.

After the month of  March, retail fuel prices remained flat since falling crude rates were negated by hiked excise duties.

Now as the benchmark Brent rates have sprung back, state-run OMCs have reportedly suffered losses of about Rs. 8 per liter of petrol/diesel they sell and they have started hiking prices to retain profits.

Also, fuel is a critical input for any economy and rise in its prices usually mean an increase in prices for a host of other goods and services

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