Prices are expected to rise for a few more days, with crude oil prices firming up as demand slowly increases.

Why petrol and diesel prices have increased for seven days in a row
Money Petrol Saturday, June 13, 2020 - 14:03

Petrol and diesel prices went up for the seventh straight day on Saturday after oil PSUs began revision of the rates after an 82-day hiatus on Sunday. The price of both was hiked by around 60 paise per litre on Saturday, with the price per litre of petrol being around Rs 78.47 in Chennai, Rs 77.41 in Hyderabad and Rs 76.98 in Bengaluru.

In the past six days alone, the price of petrol and diesel across cities and states has increased by Rs 2-3 per litre on an average.

Rates vary from state to state depending on the incidence of local sales tax or VAT. In four of the last six days, the prices have risen by a sharp 60 paise per litre while it increased by around 40 and 55 paise per litre on Tuesday and Wednesday.

Prices are expected to rise for a few more days, with crude oil prices firming up as demand slowly increases.

These increases come as India slowly exits one of the world’s harshest lockdowns to combat the COVID-19 pandemic. Compared to April, demand for fuel had doubled in May according to the Oil Ministry. 

According to IANS, the gap between cost and sale price of petrol and diesel for Oil Marketing Companies has reached around Rs 5-6 per litre. If this has to be covered over a period of time, given there is no further increase in global prices, auto fuel prices may be increased by 40-60 paise per day for a couple of weeks to cover the losses.

India imports around 85% of its oil requirements. It shifted to daily revision in fuel prices from June 16, 2017 to reflect market dynamics in pump rates. While global price trends of petrol and diesel an impact on retail prices at petrol pumps, it is largely dictated by crude oil trends globally.

The price of brent crude, the benchmark for Atlantic crude oils, has been slowly increasing after hitting historic lows in April due to lack of demand. The price of brent crude, according to reports, has nearly doubled in a month.

Oil marketing companies (OMCs) such as Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL), had kept prices unchanged amid the lockdown, even after the government on March 14 hiked excise duty on petrol and diesel by Rs 3 per litre each. There were few instances of price hike only when the respective state governments hiked VAT or cess.

When the global crude oil prices crashed to a two-decade low in April, this wasn’t passed on to consumers. However, the government again increased excise duty on petrol by Rs 10 per litre and Rs 13 a litre hike in taxes on diesel on May 6. According to Care Ratings, the government now collects 270% taxes on the base price of petrol and 256% for diesel. 

The government mopped up close to Rs 2 lakh crore in additional revenues from the March 14 and May 6 excise duty hikes. The total incidence of excise duty on petrol has risen to Rs 32.98 per litre and that on diesel to Rs 31.83. The excise tax on petrol was Rs 9.48 per litre when the Narendra Modi government took office in 2014 and that on diesel was Rs 3.56 a litre.

OMCs absorbed this excise duty hike and didn’t pass it on to customers at the time given that there was no demand due the economic activity being limited amid the lockdown.  

However, now crude oil prices are firming up and despite economic activity picking up in Unlock 1, demand for fuel continues to be low. OMCs therefore are likely to face massive losses on sale of petrol and diesel and are hence passing on the burden of the increased duty hike to customers.

The only gainers from this hike will be states, which have been starved for revenue due to the lockdown, with VAT on fuel sales being a major source of revenue. 

With inputs from PTI and IANS